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Cost Benefit Analysis 2

Cost Benefit Analysis 2

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Cost BenefitAnalysis
Successful RIM professionalsare successful businessprofessionals, Being familiarwith many business disciplines isno longer a choice. Onestrategic tool that we must all beskilled in using is cost benefitanalysis. What is a cost benefitanalysis; how can it make youmore effective as a RIMprofessional? Why and howwould you conduct a cost benefitanalysis? This article answersthese questions and provides anintroduction to this strategicmanagement tool.
RECORDS MANAGEMENTQUARTERLY – JANUARY1997
By April L. Dmytrenko, FAIToday’s Records andInformation Management(RIM) professionals must beproficient in all aspects of business management asorganizations seek to cutcosts, improve productivity,and justify every aspect of their operations. Conductinga cost benefit analysis is themost strategic way to supportthese business decisions. It isa process that should beaggressively employed, and if done correctly makes its caseon its own.
WHAT IS COST BENEFITANALYSIS?
A Cost Benefit Analysis(CBA) is the analysis of anopportunity to demonstratethe benefits in cost saving inorder to receive managementcommitment and support toimplement. Of course, themost important part of thatdefinition is the managementcommitment. Getting thiscommitment requires thatRIM professionals are skilledin conducting and presentinga CBA.What types of opportunitiesshould require a CBA?Usually the big ticketequipment purchases arethought to be the main typeof opportunities. Certainlyrecommending the purchaseof a new computer, microfilmcamera, or mobile shelvingsystem requires a thorough,documented justification.Today, however, CBA isbeing used for a wider rangeof opportunities, which areno longer limited to thepurchase of high pricedequipment.Generally, the change inbusiness climate has resultedin an increased focus on anorganization’s bottom-line.This has affected businessdecision making, requiringCBA to be utilized for allmajor purchases, expansions,organizational changes, etc.The types of CBAopportunities can include:? Adding staff ? Introducing technologies? Purchasing equipment? Upgrading existing softwareand/or hardware? Outsourcing or bringingservice(s) in-house? Changing vendors? Modifying workflow? Implementing (new)procedures? Remodeling facilities? Relocating offices or afunction
CBA JUSTIFICATION
CBA justification can beorganized into hard and softdollar savings and costavoidance. CBAs have thepotential of including any oneor all of these, and all shouldbe addressed in the CBAReport. Following areexplanations and examples of each:
Hard dollar savings
arequantitative and easy tocalculate. They representactual savings that theopportunity will realize.Hard dollar savings include
reductions or elimination of existing expenses
such as forstaff or supplies. Example:? CBA Opportunity:Outsourcing an in-housemicrofilm operation.? Opportunity Background:RIM provides microfilmservices. This currentlyincludes four MicrofilmClerks and in-housemicrofilming, processing,duplicating, and qualitycontrol. All of the equipmentis over the years old andrequires regular repair.? Hard Dollar Savings:Elimination of in-housemicrofilm staff and microfilmsupplies.Hard dollar savings are easyto quantify and are broadlyaccepted. If they positivelysupport a CBA opportunity,they provide the strongestcase for justification.
Soft dollar savings
arequalitative and loss tangibleto calculate. They represent
savings that cannot berecouped 
. Soft dollar savingsinclude saving managementtime, or freeing up recordscenter space, both result in abenefit, but the expense stillcontinues. Example:? CBA Opportunity:Automating a recordsmanagement operation? Opportunity Background:The Records Department iscurrently a manual operation.The Records Manager spendsapproximately ten hours per
 
2month tracking andcalculating operationalstatistics and preparingrecords management reports.? Soft Dollar Savings:Reduction in managementhours in support of management reports.In the above example, thereduction is in managementtime (soft savings) not inmanagement staff (hardsavings). This soft dollarsaving will gain back timewhich can now be applied toother management tasks.Soft dollar savings are
valid 
 savings, however, it isimportant to note that someorganizations do not readilyaccept them as
 justifiable
savings.
Cost avoidance
addresses
reduction or elimination of a future cost.
The types of expense items that could beconsidered a cost avoidanceare numerous from overtimeand temporary staff toadditional file equipment andleased space. Example:? CBA Opportunity:Upgrading the RecordsCenter with high density(efficient) open shelving? Opportunity Background:The Records Center currentlyuses (inefficient) filecabinets. The Center isrunning out of space and theorganization has noadditional space in its leasedfacility.? Cost Avoidance: Reductionin the future costs of (inefficient) file cabinets andnew leased space toaccommodate the growingCenter.
CBA APPROACH
It is recommended that CBAbe approached as a multiplestep process, beginning witha Preliminary Survey whichis followed by a FeasibilityStudy. Together the stepsprovide the necessaryinformation to execute aCBA Report. As a CBA caninvolve an investment intime, these two surveys arepre-steps with each requiringinformation that justifies if the next step is warranted.A
Preliminary Survey
isconducted as an initialevaluation of an opportunity.Its purpose is informationgathering on the existingsituation as compared to theCBA opportunity. As part of the Preliminary Survey, avariety of techniques can beemployed. Theses techniquesinclude focus group input,customer surveys,observations, statisticaltracking, cost examination,and workflow. Based on thedata, and assessment is maderegarding the potential of theCBA opportunity. If thissurvey’s assessment issupportive of a movingforward with the process, thenext step is taken.A
Feasibility Study
finalizesany outstanding datagathering, assesses the data indetail, and completes theanalysis process. It providesfinal confirmation if the CBAopportunity offers thebenefits initially projected.The analysis of the datashould address the short andlong range impact of theopportunity. The impactcould involve its effect(positive or negative) on theorganization, customers, staff operations, service levels,and budget. If the result of the feasibility studydetermines cost effectiveness,the data is used to supportdevelopment of the CBAReport.
CBA TechnologyOpportunities
One of the most popularCBA opportunities is theintroduction of technology.For a RIM operation thismight mean recordsmanagement software orelectronic imaging. Atechnology opportunityrequires an involved studyphase. An example of whatcould be involved orconsidered for automating aRIM operation includes thefollowing:? outline software needs? functionality: inventory,tracking, request processing,mixed-media, retentionmaintenance, box todocument level, etc.? capabilities: reporting,search, bar-coding, labels,retention scheduling, etc.? ease of use: amount of training required, helpscreens, user manual, globalchanges, etc.? operating: memoryrequirements, operatingsystem, networkable,security, etc.? maintenance support: on-site, dial in, turn around time,etc.? outline hardwarecomponents needs? personal computer (s)? network card? barcode equipment? tape back up unit? outline existing system(s)aspects that wouldsupport/affect the opportunity? operating system? file server capacity? procedures? information managementprocess
 
3? volume peaks? identify to what extent in-house and/or externalresources will be required? gather qualitative andquantitative data? focus group meetings withinterfacing departments? productivity history? any service backlogperiods? customer satisfactionsurveys? manual tasks to beautomated? involve individuals withexperience and knowledge inautomated systems? address risks of theopportunity? resistance of system bystaff and customers? start up effect on operation? system and service issues? identify all costs? start-up and follow-uptraining? labor (full-time, part-time,temporary)? conversion to system? installation andmaintenance? materials and supplies? equipment, hardware, andsoftware? plan for systemimplementation? installation and test phase? data download (if possible)? training of RIM staff ? customer orientation? data entry of information? file conversion.
CBA REPORT
The CBA Report is thepackage that sells the targetedopportunity. It should bethorough, well organized,clearly communicated, andfactual. In order to besuccessful, the report’scontents must provide uppermanagement with theinformation that will allowthem to make a sounddecision and take action.The CBA Report can bedesigned and formatted in avariety of ways. There is noone-way or right-way topackage the report. Manyfactors are to be considered,including:? the complexity of the topicof the CBA? understanding/awareness byupper management of theCBA topic? internal standards regardinganalysis, recommendations,costing, presentationpackages, system, etc.? timing regarding theorganization’s currentfinancial status, point in thefiscal year, pendingorganization changes,internal plans which couldaffect the CBA opportunity,etc.? past history and eventsregarding the targetopportunity.A proven outline for a CBAReport, as with any report,includes a beginning, middleand conclusion. Thebeginning and conclusion arebrief and basically provideoverview information. Theidea is to provide the readerwith information that eitherintroduces or summarizes thekey aspects of the report. Inour busy world, thesesections might be the onlysections that a decision makerwould look at before decidingto throw it on the “pile toread later” or to keep readingthe report.The middle section is themain course. This is wherethe primary information ispresented in detail.
The who-what-where-how-why
questions are to be answeredin this section. In developingthe report, it is important tokeep in mind that it is a
report 
not the “greatest storyever told.” Even inpresenting the detailedinformation, it should beconcise.Depending on the complexityof the CBA opportunity, anAppendix is a good idea toinclude where referencedetail can be housed. Thiswill support more in-depthinquiries and allow themiddle section of the reportto flow unencumbered.A well-packaged Reportshould include:? Executive Summary? Introduction? Scope and Purpose? Methodology of the Study? Recommendation? Justification? Implementation? Summary? AppendixFollowing is an overview of each of the previously listedaspects of a CBA Report.For each, a simple example isprovided.
Executive Summary
The Executive Summaryprovides a brief overview tothe CBA Report. It states thereport’s purpose, the natureof the opportunity,summarizes therecommendations, andoutlines the benefits. Thissection is the first to bereviewed by the decisionmaker(s). In addition tobeing clearly and conciselycommunicated, it must beable to grab their interestenough that they will
want 
toread further. Example:

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