Building the Business Case (Part 2) – Cost Reduction

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When it comes to building the case for an Information Management strategy, cost reductions alone may generate enough benefits to justify your business case, or they could further enhance your economic arguments.

Here are some examples of where you may uncover potential cost reductions:

1) IT costs, such as managing redundant systems/databases, data duplication and/or reconciliation, consulting fees, and software maintenance fees

2) Delivery costs due to inaccurate data, such as product returns, shipping fines, direct marketing waste, returned employee mailings, and Day Sales Outstanding (DSO) costs from invoicing delays

3) Productivity costs due to inefficient processes creating workarounds, redundancy, or rework. Also consider costs associated with audits, time to search for customer records, and time wasted matching customer files

Start by interviewing internal business partners to determine where they have issues. If your partners identify problems and participate in the business case development, they’ll have a vested interest in supporting it. Here are some business areas to consider:

  • Finance / Credit / Accounting
  • Sales / Contracts
  • Corporate Development / Mergers & Acquisitions
  • Marketing
  • E-Commerce
  • Customer Service / Call Center
  • Operations / Production
  • Human Resources
  • Product / Vendor Management
  • Merchandising
  • IT

Ways to identify and measure costs include:

  • Quantify shipping fines, returns, or other operational expenses
  • Quantify mail return rate, response rate, and delivery hit rate (did the mailing actually make it to the intended person?) Check with Direct Marketing, HR, Finance/Accounting/Credit, Mailroom, or any other outbound mail services for these costs.
  • Identify rework or workaround activities such as returned mail, product, and invoice corrections, product information corrections, report reconciliation, multiple databases, merge/purge and data matching errors, etc. Some partners, both leadership and end users, may accept this as ‘business as usual’, so be careful not to appear threatening or overly challenging.
  • Conduct process mapping or other continuous improvement activities to identify & quantify problem areas. Always keep a broad perspective and analyze both up and down-stream processes.
  • Conduct time studies on processes or transactions that appear inefficient such as customer service, warehouse, manufacturing, vendor management, payroll, reporting, data management, selling, marketing, planning, forecasting, customer maintenance, mergers and acquisition, etc.
  • Conduct satisfaction surveys to measure customers’ experience with duplicate mailings, wrong customer information, delayed shipments due to bad data, credit problems, customer look-up time, etc.
  • Work with UPS, USPS, FedEx and other carriers to determine how to improve shipping/postal rates

Cost improvement opportunities will exist all around the business; the trick is determining where you will get the “big wins”. It’s good to have a Finance partner participate throughout this process, so your assumptions and calculations are ‘blessed’.

To find out how to identify business growth opportunities and align business leaders, stay tuned for the next two articles in this series by Maureen Butler.

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  1. Building the Business Case (Part 4) - Gaining Alignment « Hub Solution Designs - 04/30/2008

    […] of this series, we covered three key drivers for building your business case: Risk Management, Cost Reduction, and Revenue […]

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