I can’t tell you how many investment ideas are pitched to me as a cost avoid. If you were to add up all the cost avoid ideas over the years, IT would be free at this point. What I’m really saying is, “be skeptical of cost avoid”. Let’s take a look at how to flush out bullshit.
First and foremost, do you trust the person pitching the idea? Does this person have a track record of being right or are they known as a gamer? Before you get to ROI, you can stop a lot if frivolous ideas in their tracks by judging reputation.
Once you’ve passed that small test, you’ve moved on to ideas that can be judged on their own merits. Everyone is out pitching an ROI, but what’s valid? Personally, I break it down into three buckets. Direct cost saves, cash saves and allocation saves.
Direct cost saves have a dollar for dollar impact on the company’s bottom line. These should move to the head of the line. A direct cost save should be specific and measurable. A good way to flush out fact from fiction is to tie compensation to the goal. If you have a license up for renewal and the app owner is proposing a cost save, ask them to stake their bonus on it. “If we save $1m, I’ll give you an extra $25k this year. If we don’t, you get nothing.” Any app owner that agrees to the proposal should be taken seriously. I’m sure each company has their own goals for payback period, and that must be considered. But always back an app owner that’s willing to put their own money on the line. You always want folks to think like an owner and this is the best example.
Cash saves are a bit different. In this example, an idea is pitched that will send less money out the door but not impact the P&L. I love these but some companies couldn’t care less. Remember, P&L is nice, but you live and die on cash flow. You may be in a large company where cash flow isn’t a concern to you but I promise that it is somewhere up the line. Again, you want the app owner to take command. But in this case the financial rewards can’t be as high. I will say that I secretly give folks a “gold star” for proposing these types of changes.
Allocation saves are the weakest of all. Making an investment to save one client money at the expense of the other clients is nonsense. Unless that business unit is of strategic importance, this is the path to losing money. Don’t consider these without using extreme caution.
Obviously there are a million variables at play here. Make sure you address every investment proposal with skepticism and you are starting from a great place.