Reduce Your Expenses
One of the most common and most basic strategy for applying technology investments is by reducing expenses. Here's what that means, and why it's not a perfect solution for long-term returns. Russell Mickler, computer consultant in Portland, Oregon and Vancouver WA, walks you through the problem.
IT Strategy: Reducing Expenses
Okay, so a couple of days ago, I wrote about the effects automation should have on a business. More investment in technology yielded greater automation, reduced or diminished the impact of labor, increased productivity, systemized the business to transform it from a job and into an asset, and increased profitability.
And in that discussion, I promised you that I'd discuss three strategies that business can use to apply their technology investments. One of the three strategies, Reducing Expenses, is the easiest to understand and the most obvious.
Greater investments in technology automates the business, improves productivity and efficiency, and reduces operating expenses. Tech investments allow you to do more with less. That, in turn, improves profitability.
It's a Great, Basic Strategy ...
Reducing Expenses is the easiest, most basic strategy for applying IT expenditures. It's the first place we look to when trying to measure a Return on Investment (ROI) associated with technology investments.
In calculating an ROI for this kind of strategy, you'd approach it in four steps:
- Measure the cost of doing nothing - add up how much it terms of labor and materials to do the existing business process.
- Measure the time involved for doing the existing business process.
- Apply the technology investment.
- Now compare the new cost of labor and materials, and, the time it takes to get the business process done.
- Divide the dollar amount saved against the amount spent on the technology investment.
Example:
Let's say that a business process took $6,500 and 16 hours in labor and materials and time. In investigating the business process, it's determined that $2,000 in technology spend can help the employees work smarter. After deployment, new measurements are taken. The new process is $3,900 and takes just 11 hours to perform. That's a $2,600 savings from $2,000 worth of investment, or a 130-percent ROI. Plus - and a big bonus here - we're saving five hours. Gosh, more time! What's that worth?
... But You Can't Reduce to Zero
Pretty cool, huh? Well, it's cool for the first couple of go-arounds anyway. Eventually, we'll run up against the limits of what current technology can offer us. We can only reduce expenses so far. We can't make the business process operate at $0.00 dollars and at zero expenses taking zero time. That's impossible!
It's the Law of Diminishing Returns at play - over time, we can only reduce expenses just a little bit more, just a little closer to zero (but not actually reaching zero), until there's a huge shift or change in technology - which means every incremental investment returns less and less time and money.
That makes Reducing Expenses a common, basic strategy but an insufficient play in the long-term. It has to be paired with other techniques to obtain even higher returns from technology spending. Next time, we'll talk about another approach: Containing Expenses.
R
IT Authority Policy
Administrative Controls are policies and procedures that govern your IT environment. The Sample IT Authority Policy sets up the chain of authority for who can create and manage Admin Controls in your company.
I often write draft policy documents for my clients. I thought I'd go through a refresh those documents, and begin a blogging series that highlights the importance of Administrative Controls.
Administrative Controls are a "best practice" approach to managing information technology assets. They are the policies, procedures, and work instructions that convey management's expectations governing the use of those assets. These controls demonstrate management's interest and engagement in the process of managing information technology.
The risk concerning Administrative Controls is found in their absence, especially in areas of technical compliance. If management never bothered to create a policy governing their IT assets, they never bothered to create and communicate expectations to their employees, shareholders, or consumers, and therefore it could be construed they never intended to manage their IT environment in the first place. That lack of attention could be thought of as negligence, like, "why didn't management take reasonable, 'best practice' precautions in managing their stuff, anyway?"
In legal terms, management loses a "due care" argument: they never understood nor accepted the risks for managing their IT environment and never took "due care" obligations seriously. That becomes a hole in their defense of a negligence claim.
The first policy I help my clients introduce is the IT Authority Policy. The IT Authority Policy identifies the executive responsible for implementing the suite of IT policies and procedures. This is the party responsible and accountable for IT policy implementation. This document serves as authorization from the chief executive or board of directors, delegating authority for managing the IT problem, and becomes the basis from which all other IT Policies are drafted.
This is a reasonable Authority Policy that can be modified to suit your needs; it is intended for use with a small to mid-range business. Have fun with it. Meanwhile, stay tuned for more policies and procedures that'll be introduced through my blog and available eventually from my website.
R
Goodbye Net Neutrality - Hello Net Discrimination
Net Neutrality used to matter. Soon, it won't. Recent actions by the SEC and FCC are undermining US competitiveness. Greed hurts everyone - even the greedy - but it'll especially hurt small businesses and our kids even more.
Well, it was a good idea.
Everyone, everywhere, regardless of your size or complexity, should have unfettered access to the Internet; everyone's packets should get treated the same way no matter who you are; the superhighway shouldn't get an HOV lane or a premium lane or levied a toll for crossing; the Internet should be a neutral place where anyone could get their foot in the door, to become the next Facebook, Apple, or Google.
Net Neutrality has been a long-standing idea behind the design and implementation and regulation of the Internet. Until now.
All that's about to change.
New changes in upcoming FCC regulation will allow ISP's (already fattened, regulated monopolies in this country) to charge for higher speed access to American consumers, effectively creating a fast lane for premium rate-payers.
That's bad news for small business who'll end up having to pay more to keep up with a premium "look and feel" as the larger companies who can afford the higher transfer rates.
It'll also keep downward pressure on startups and innovators who want to disrupt the ecosystem and dethrone the reigning content providers.
It's bad news for web design and developers who'll need to create tiers of design strategies based on the bandwidth budgets of their customers.
And it's bad news for the consumer who'll suffer through second-class speeds unless they browse to the websites of premium rate-payers. Let alone our Internet speeds suck. In Seoul and Stockholm, users are paying $25/month - 1/17th of the American price-tag - for gigabyte service: 100x faster than what we in the United States experience. The average Joe from South Korea flies out here and thinks we live in a 3rd world banana republic because our Internet connectivity is so bad. And with the recent Time Warner/Comcast merger, US consumer is left getting kicked in the ribs over and over again.
If the Internet is the emergent platform for innovation in business, commerce, medicine, engineering, biotechnology, nanotechnology, cloud computing, big data, research, and education, the FCC and SEC are doing their darnedest to keep the United States in a perpetual state of uncompetitiveness. Over time, greed and discrimination hurts everyone - even the greedy. Except it'll hurt our small businesses and our kids even more.
R