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Just Ask Ray Williams What Things Really Cost

Easy, a gold watch $9,800 and jelly beans $1,500 a pop. Ray's shopping habits may differ from yours but it does help to know what things really cost.

The essence of last month's InfoByte was that the lack of commercial and financial literacy allows companies to get away with reprehensible financial practices as in the case of WorldCom, Enron etc.

A recent experience of the inequality in financial literacy and commercial knowledge had me wedged tightly between a General Manager, a finance director and some bright eyed, highly motivated production, marketing and sales staff. Let me explain.

The issue was the purchase of a comprehensive customer relationship management (CRM) system. Off the shelf $2.8M, customise it $1.58M, full interface with in house systems $.8M, staff trained $1.1M – so a mere $6.28M – sounds familiar? Yes but, our competition has it, we'll make more money and there are productivity savings.

Now, if you believe the $6.28M price tag, installation will be less expensive, as the fairies from the bottom of your garden will give you a hand – but that's another matter. $6.28M is a mere flag fall. What about necessary IT upgrade, management & staff time, regular product upgrade costs, maintenance
contract and corporate tax rates of 30%? What about corporate tax rates, I hear you say?

Yes, tax rates as all capital to purchase an asset like the CRM comes from the shareholders out of after tax dollars. The real amount for the off the shelf price CRM is $9M. Now where were those extra profits and productivity gains?

The consultants proposed a $12M increase in sales, why not, it looks about twice the "total cost" – but they too, were a little bit financially illiterate.

With a 9% profit margin it would take a lot of extra sales (can you work out how much) to make this baby fly.

Staff saving was estimated at $.3M per annum with a potential for an extra $.2 if the CRM system runs at optimal capacity – pigs will fly!

An efficiency dividend of 15% on customer handling would be reaped, but as it turns out this part of the cost structure is a mere 7% of operating costs so we have .5% operating savings in addition.

In the end the combatants could not agree on whether or not this investment would return a positive ROI in sufficient time to qualify for approval by the Board. Even the concept of ROI needed to be debated, after all, we only had three versions of what that meant and how it should be calculated.

This experience will remain with me for a long time as an illustration of the chasm of perspectives, knowledge, basic concepts and a common language that would have enabled this room full of people to discuss and support each other to make a sensible commercial decision.

Mercifully after 4 hours of Middle East diplomacy the worn down combatants retreated. The marketing manager remarked under her breath that her colleagues were mean spirited and tight…… The General Manager said, "we all want to do well for the company, it beats me why we constantly stand in each others way".

What Next?

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