Saving your way to Bankruptcy
February 15, 2017 Leave a comment
How often have you hear “Honey I bought it on sale and saved us a ton of money”? Really? Did at the end of the month you could see your bank balance increase? Often, we hear similar words inside an enterprise. We’ll saved 1000 man-hours with this new project. Can you really save man-hours? I’ve not seen any place where time could be saved, much less get paid interest on it.
So, if these questions seem logical, why do we continually hear internally and from vendors about all the time savings? Possibly because emotionally we all like the idea of bargains and savings. The problem becomes that savings is not always savings.
Several years ago, I help develop an economic justification methodology specifically for my employer. As I had done this previously for other employers it wasn’t a large stretch if all they wanted was a standard ROI procedure. I had brought up to management building an business case on time savings would have little value as CFOs and other management would know time saving is not economic benefit unless you do something with it or avoid having to get more resources to accomplish the goal.
The simple examples: I could automate a process using technology “saving” one hour a day per person. If I can defer hiring additional resources (cost) to accomplish a goal for a smaller investment in the technology, then I’ve actually saved money. If, however, I “save” one hour per day of staff time and nothing is done with that time, then I’ve actually lost money. If I continue to save time and money this way, I’ll be bankrupt in no time.
My advice for avoiding such a problem is while in the planning phases of a new initiative consider what you’ll be doing with the savings. Will the staff be able to effectively use that additional hour a day? This could be getting out one more proposal to a potential client, exchanging knowledge between peers, or any number of other activities. The key here is to have a plan on how that savings is to be used.