Last month while attending a World at Work conference I heard an alarming confession. During one of the sessions on vendor evaluation, a customer confessed that they didn’t focus on hard dollar ROI because they didn’t feel the system would ever be able to provide ROI based on hard dollar costs. The vendor doing the evaluation felt that a focus on ROI was a losing proposition. Many benefits of a new system are hard to quantify and difficult to predict with absolute certainty. In this era of fiscal prudence, quality benefits that can’t be quantified also can’t find budget. Instead, CFOs prefer to evaluate on hard dollar savings, such as accuracy in payments, fewer disputes, lower resource count, etc. Having seen several companies go through SPM implementations and benefit from the new functionality, it occurred to me that many benefits are anecdotal and not entirely quantifiable. So does the cost really justify the expense when measured in hard dollars alone?
After listening a little further I came to the following conclusion. If it is quantifiable it should qualify as a hard dollar cost. The company in question had a multitude of shadow accounting issues, but didn’t see that as a factor in the hard dollar ROI calculation. Had they done this, I feel they may have come closer to the number than expected from a savings calculation.
Shadow accounting is primarily a time and productivity hindrance. Imagine every participant feels they need to track all their sales so that each month they can double check their commission check. This time spent accounting and investigating discrepancies is time not spent selling.
Let’s do some quick math.
If you have 1000 sales reps and they each spend just 1 hr per month doing shadow accounting…
that’s 1000 x 1hr x 12months = 12,000 hrs per year in lost productivity. How much is one hour worth?
If 1 hr is worth $50 in cost, that’s $600,000 per year in savings by eliminating shadow accounting.
If 1 hr is worth $50 in incremental sales that’s $600,000 per year in extra revenue.
Now imagine there is more than 1 hr per rep per month of time wasted. Those numbers quickly become very large and very compelling.