Monday, May 13, 2013

Quantifying the cost of doing nothing

A recent client meeting reminded me that we often focus on the cost a project and its ROI yet forget the cost of doing nothing at all. 

For example, I received a request from a customer to estimate the cost for their customers to order online, check on inventory availability, pricing, etc.  For their environment and needs, I determined the cost to be approximately $15,000 to implement the technology to allow their customers to have this "self service" capability. 

$15,000 may or may not initially sound like a lot of money to spend on this type of project.  But is it?  In their case, they didn't feel they would have enough of an increase in sales to justify the ROI.

A fair question is: what is the cost of doing nothing?

If one of their customers that annually purchases $250,000 of their product at a margin of 20% leaves them for a competitor who has the 'self service' capability, the cost of doing nothing is $50,000.  Additionally, instead of needing four customer service personnel to handle the incoming calls from customers they could reduce that to three, increasing the 'cost of doing nothing' $30,000 to $40,000 plus benefits.

Whenever you determine the cost of doing any project in your company, be sure to consider the cost of doing nothing in your ROI.  Many times it is a forgotten and significant portion of the equation.

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