Monday, March 10, 2014

From the IT Buyer to the CFO to Your Order - Three (Not-so-easy) Pieces (Part 1/2)

I am fiercely loyal to those willing to put their money where my mouth is.   [Paul Harvey]

It’s a common experience. You've convinced everyone in IT that your solution is the best and most cost-effective and been assured that a Purchase Order is on the way. Then sudden silence, followed by panic, building toward anger, and ending with that sinking feeling. Your order never appears and you don’t know why. Perhaps your customer tells you, “It got killed upstairs”. What happened?

Most major technology purchases must be approved by the Chief Financial Officer; if they’re big enough, often the Board must sign off as well. This is not a rubber-stamp process. There are usually competing priorities, and then there’s risk. Picture the following scenarios and try to put yourself in the position of the person who has to place the best financial interest of the company foremost.

Acme Widget’s production department has a proposal for eight new computer-driven milling machines. Each machine costs $500,000 and will displace 4 hourly employees at $45 per hour, paying for itself in 17 months. In addition, the machines will allow Acme to produce jobs quicker and can produce more intricate parts than can be made with today’s equipment. The sales department estimates that this will generate an additional $1,500,000 in annual sales. The machines come from a reputable supplier that Acme has worked with in the past, and a major competitor recently installed the previous (slightly inferior) version successfully.
Acme’s IT department has a proposal for $2,400,000 for a new IP-based unified communications systems. The old PBX systems are functioning, but are really past their end of life.  If one failed, an office might have no service for a few days. The old systems cost $150,000 per year to operate— costs that will be eliminated. Unified communications will make everyone’s work life simpler. Based on a national survey, the IT department estimates that it will save each sales person 30 minutes a day of currently unproductive time. The UC system comes from a reputable supplier, but the CFO has heard stories about similar projects encountering problems with voice quality that required additional network upgrades and took much longer than anticipated to get properly working.
The first case is clearly superior – the return on investment (ROI) is almost immediate even without the additional revenue. The second case represents an increase in costs with no significant cost reductions to offset it. Now consider the cases with slight revisions.

Acme Widget’s production department has a proposal for eight new computer-driven milling machines.  Each machine costs $500,000 and will displace 2 hourly employees at $45 per hour, paying for itself in 34 months. In addition, the machines will allow Acme to produce jobs quicker and can produce more intricate parts than can be made with today’s equipment.  The sales department estimates that this will generate an additional $1,000,000 or more in annual sales. The machines come from a reputable supplier that Acme has worked with in the past, and a major competitor recently installed the previous (slightly inferior) version after a few months of shakedown and rework.
Acme’s IT department has a proposal for $2,400,000 for a new IP-based unified communications systems. The old PBX systems are functioning, but are really past their end of life.  If one failed, an office might have no service for a few days. The old systems cost $250,000 per year to operate; costs that will be eliminated, plus reductions in long distance, traveling for meetings and other small items. Taken together, the savings will repay the investment in 30 months. Unified communications will make everyone’s work life simpler.  The IT department estimates that it will save each sales person 30 minutes a day of currently unproductive  time. The VP of Sales predicts that one sales manager position will be eliminated as a result, saving $220,000 annually. She further expects that a more responsive sales force will improve Acme’s reputation and lead to a higher (although unquantifiable) sales closing ratio. The UC system comes from a reputable supplier. The IT team includes a plan of implementation that specifically addresses potential problems and proposed workarounds, with costs.
This is a much closer call. 

What is different between the two cases? In the second instance, the ROI is about the same with the edge going to the UC system. This is because the possible avoided cost of a sales manager ($220,000 per year) is worth more to the company than the potential $1M+ in additional revenue (which equates to maybe $125,000 to the bottom line, depending on Acme’s net profit percentage). Neither benefit is assured, but if the CFO gives both an equal likelihood of happening, the IT proposal has more “extra” benefits.

The second instance has slightly more risk in the milling machine proposal due to the competitor’s less-than-perfect experience. Actual risk for the IT proposal is the same in both cases, but in the second instance, IT has addressed the risk head-on and offered a mitigation plan.
Finally, in the second instance the IT proposal has critical sponsorship from the Sales department that was lacking in the first example.

Approval of major technology decisions hinges on three elements: the numbers, the perceived risk, and the credibility of the case.


11 comments:

  1. It's very helpful post and i had good experience with this salesforce training in Chennai who are offering good certificaiton assistance. I would say salesforce training is a best way to get certified on crm.

    ReplyDelete
  2. In such cases, "Perhaps the fee for using the card is less important to an individual than reaching these incentive milestones," he says.
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com
    fishyfacts4u.com

    ReplyDelete
  3. Zyro website builder, an easy solution for your web building projects. While being relatively new in the business, Zyro already has made a name for itself for being an innovative and simple way to build a great-looking website with relative ease.
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com
    emagazinehub.com

    ReplyDelete
  4. Ideally, you want to get the most value possible from your credit cards. Although you should factor in rewards and cardholder benefits, the simplest way to increase your card’s value is to reduce or eliminate as many unnecessary credit card fees as possible. You can do this by taking these steps:

    inewshunter.com
    inewshunter.com
    inewshunter.com
    inewshunter.com
    inewshunter.com
    inewshunter.com
    inewshunter.com
    inewshunter.com
    inewshunter.com
    inewshunter.com

    ReplyDelete
  5. Traditional IRAs, 401(k)s and similar retirement savings vehicles allow people to deduct their contributions. In 2021, employees can make up to $19,500 in deductible contributions to a 401(k) with workers age 50 and older entitled to deduct an additional $6,500 in catch-up contributions. Deductible IRA contributions are limited to $6,000 for workers younger than 50 and $7,000 for those age 50 and older.

    juicyfactor.com
    juicyfactor.com
    juicyfactor.com
    juicyfactor.com
    juicyfactor.com
    juicyfactor.com
    juicyfactor.com
    juicyfactor.com
    juicyfactor.com
    juicyfactor.com

    ReplyDelete
  6. When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    When you are working for yourself, you may have a lot of deductions to report, and knowing what can be reported and what can't can get complicated.

    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com
    localnewsbuzz.com

    ReplyDelete
  7. By design, there are only a certain number of Bitcoin that will ever be minted. This is primarily to maintain anti-inflationary properties that plague fiat currencies. Only 21 million Bitcoins will ever exist, although many millions are presumed lost.

    Tours & Travels
    Apps
    Apps
    Business
    Digital Marketing
    Economy
    Education
    Entertainment

    ReplyDelete
  8. All of our highly-specialised close protection and bodyguard teams consist of bodyguard company
    ex-military and law enforcement veterans and are highly competent and qualified for whatever is thrown at them. Literally.

    ReplyDelete
  9. If you're searching for the best technology blogs, you should give AtozTopNews a chance. They offer everything from tech updates, SEO, Software, Crypto Mining, Digital Marketing, Email Marketing, and more. In the end, it's the one-stop solution for all your daily technology updates and other crucial marketing trends. It's an excellent place to receive real-time technology news and updates with other noteworthy news from them.

    ReplyDelete
  10. Tamiloneindia is a full-service, general interest daily media publication in the nation's capital. Tamil One India has gained a reputation for hard-hitting investigative reporting and thorough coverage of politics and policy. Stay a step ahead of the world events that affect the future of our nation.

    ReplyDelete
  11. Segera Daftar Slot Online di Api777 sekarang juga dan dapatkan penawaran exclusive khusus untuk anda yang mendaftarkan hari ini. Penawaran ini hanya terbatas untuk 100 pendaftar pertama setiap harinya. Hubungi Live Chat kami untuk Info lebih lanjut mengenai Pendaftaran, Deposit, Withdraw, Bonus dan pertanyaan lainnya mengenai Api777. Slot deposit dana


    ReplyDelete