A Problem Becomes an Opportunity
This article is reproduced with the permission of CAmagazine, published by the Canadian Institute of Chartered Accountants, Toronto.
Using technology to improve the way you do business
By Michael Burns
I am thankfully back after recovering from an illness that kept me on the sidelines for a few months. I had lots of time to contemplate the universe, and you would think I’d be able to share great words of wisdom. Alas, I can’t tell you anything that you don’t already know, such as being thankful for health, family and friends. Unfortunately, most of us are so caught up in day-to-day living that we don’t show our appreciation or spend much time with the people we care about. Most of us get angry over small things and miss the big picture. Don’t wait for a serious health problem to arise before you start thinking about spending quality time with family and good friends.
And now back to business (or lack of it). Many organizations have been forced to lay off employees and cancel or postpone new projects. Companies that are not facing collapse are just hunkering down and waiting out the storm.
There are obvious ethical reasons for keeping employees in tough times, but there are also excellent business reasons. What better time to train employees than when they have some extra time? They will learn new skills and forever be motivated to work that much harder for their employer.
Does it make sense to invest in IT projects during tough times? Theoretically, a slowdown is the ideal time to retool. Employees can devote their spare time to improving business processes, and vendors will be more receptive to discounting, especially when they can look forward to 10-plus years of maintenance, which runs on average 18% to 20% of list price.
Companies won’t want to invest in technology if they have just been forced to lay off part of their workforce. But some will want to scale back their ongoing information technology costs. They might be able to renegotiate terms with their vendor. They might also choose to replace a system that has become a drain on the budget because of heavy upgrade fees or annual maintenance fees that were calculated on the original licence fee. But be careful if you choose the replacement strategy, because the internal costs to implement a new system can be onerous too.
A business-case approach is recommended to determine whether to make the information technology investment. Some benefits will be tangible — e.g., saving money through increased efficiencies. But what about intangible benefits such as improved customer service or decision making? These should be converted into tangibles to make the business case. Improved customer service can be a tangible benefit if it will lead to higher customer retention or more customers. Improved decision making can also be turned into a tangible benefit if you calculate the cost of providing the information required by management using the existing system. But don’t make up any numbers. They need to be substantiated based on discussions with trusted people such as customers or senior managers.
A business case should include five years’ worth of costs and benefits with calculations for net present value, return on investment, payback and internal rate of return. These calculations are the easy part. It should not be a problem to get reasonable figures on cost directly from vendors. Include licence, services, maintenance, IT infrastructure changes and internal costs. It is advisable that an accountant review and approve the business case. He or she will not only see the holes in the calculations but will insist that each number be backed up by evidence.