The Cost / Benefit Equation – Reality bites!

Years ago, I was struggling with whether to accept a promotion that meant moving my family half a continent away, and lose my daily visibility to the powers that be at corporate headquarters.  I was doing the objective “pros and cons” columns, and getting nowhere.  A very wise man told me: “Decide what you want to do, and then you will be amazed how easily the analysis will fit.”  I did, and it did.  I accepted the promotion and the results were very positive.

 

Much as we all would like to believe that we are completely objective analytical beings when making business decisions, at the end of the day it really does boil down to what we want.  “Need” is an absolute; “want” is emotional.  Contrary to Mr. Spock’s viewpoint, emotion always trumps absolutes.      

 

One of our clients decided it was time to look at a new ERP.  They set up a very objective and expensive methodology to score competitive ERP systems with scorecards, spreadsheets, a multidisciplinary team….  Before the process was in place, I told them that they would buy SAP.  It was obvious to me from what I knew of their culture that this was the inevitable outcome – fit, features, benefits, cost would have nothing to do with the true decision – they would be rationalizations of the decision that had already been made, although even the people who had made the decision did not know that yet.   18 months later, after extensive “objective” analysis, and despite being exposed to what I believe were better fit systems for their business model at a fraction of the cost, they bought SAP.  So far they are over a year late on implementation, and I have my doubts about the future.  But, both senior management and IT wanted SAP, so the cost justification analysis proved it was a more cost-effective solution – well worth the extra costs and complexity.

In the 1980’s I designed an inventory control system for a private company in Montreal.  I was dealing with the owner, reviewed the system, and he agreed completely with the projected savings and efficiencies that made the financial decision a no-brainer:  spend $50,000, save $150,000 in less than a year.  On a lease, he would actually have positive cash flow because the savings would be realized before the cash was dispersed! At the end of the meeting he looked at me and said:  “It is just not a priority right now.”

Even though this was his own money, he just didn’t want it right now… perhaps a new Mercedes was higher on the list. Speaking of Mercedes, here is another example of want versus need.  Yes, perhaps someone who typically drives 200,000 miles a year needs the reliability of a Mercedes… but most of the people who can get the same level of performance, luxury, comfort and reliability from several of Mercedes’ competitors… but they want to need a Mercedes.

So the first lesson in “cost justifying” a Quality or MES system is to realize that cost justification is just one vehicle to convince those who control the purse strings that they WANT the system.   Or, best case, cost justification helps those that want the system to rationalize the acquisition of it.

Many of the people who have installed QIC systems have experienced a higher profile in their organization, and as a result of their success, their careers have progressed quickly.  That does beg the question of cause and effect – Is it that really smart people tend to choose our solutions, or do our results make our users look good.  Regardless, a promotion is potentially a more powerful reason to buy the system than any amount of “projected savings” could ever be.

Nevertheless, in most organizations we still have to go through the exercise of an objective cost justification – just recognize that systems that are wanted will be cost-justifiable; and systems that are not wanted will not make the cut.  The cause and effect are actually reversed. So my next blog entry will address some of the benefits of MES systems, and how real savings can be identified and quantified.  Just remember the reason for doing so is to convince someone to want the solution.