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The shocking truth about ROI and payback period in operations management

‎07-18-2013 03:40 PM - edited ‎10-26-2015 08:47 PM

By Michael Zuber

HP Cloud Leader (Americas)

 

At one point or another, every business leader I speak to wants to discuss three key financial variables: Hard Dollar Savings, Return on Investment (ROI) and their Payback Period. During these conversations, I also like to remind clients about the value of the “opportunity cost” of a project.

 

Opportunity Cost

 

Opportunity cost refers to the next project or strategic initiative that you would like to do but can’t because of some capacity constraint. In many cases, you miss out on a big opportunity because your resources—personnel, time or budget—are already fully committed. Successful leaders are always looking for ways to remove roadblocks and constraints for their teams, which is why I often advocate that companies place more emphasis on opportunity cost.

It can be fairly easy to calculate the savings in labor that automation and the cloud strategies can help a business can achieve. But automating manual tasks or tedious, hard-to-execute activities also have an opportunity cost play that should be considered.

 

Why it matters

 

Let’s say you acquired automation software that promised savings equivalent to four full-time staff. In today’s economy, I believe that clients should not simply eliminate those positions, but would instead benefit from asking themselves, what could four talented people accomplish if software automated their old job? Could they invest their time on new initiatives? Could they create a new revenue stream for the business? Could they find a better way of doing things? Could they create differentiator for the business over the competition?

 

The answers to these questions are the true opportunity cost of not automating repetitive tasks with an industry-leading solution. Imagine how much more employees could focus on the next great thing once their current daily tasks become automated.

 

So what is your opportunity cost? Do these scenarios make you rethink your employees’ potential to start a major new project?

 

Learn more

 

Find out how HP Software solutions can help your business reduce Opportunity Costs in your IT organization.

 

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