The Cost of Status Quo: When is it Time to Look at a Software Change?
The cost of the status quo is something that is very commonly overlooked in an organization. On the other hand, it is the one thing that might be pulling your business down. Let’s make things simple. If you are doing everything by the book and everyone is as efficient as they were before, but your business is underperforming in terms of income, productivity and competitive advantage, the Cost of Inaction is claiming its price.
So, what is the cost of the status quo?
Every business has numerous internal systems. If the business grows out of them or the market needs make them obsolete and if there is no action towards improving or replacing those systems, an organization pays the cost of inaction.
Technology, whether it is a software or hardware, upgrades are not cheap. And the rolling out of new solutions in an organization is a complicated task that requires serious planning, time and effort. This is why it is very common for an organization to cope as best as it can with the solutions they are currently using, thus avoiding or delaying much-required technology upgrades and updates.
There is one definition that sums up what the cost of the status quo is really well: “The cost of the status quo is the business and opportunity costs associated with organizations not deploying necessary technology and other business-innovation improvements to match the complexity of their business”.
What Causes This Inaction?
The practice of postponing technology updates and upgrades is commonly rooted in the dread of the effort and the perceived disruption these actions may cause to a business operation. Sooner or later, a manager will be able to see that something needs to be upgraded, but instead of initiating this upgrade a manager chooses to milk the current infrastructure a little bit more. Until the day comes when the efficiency significantly drops and the organization’s market position is jeopardized.
This is not the only instance when Cost of Inaction gets recognized by managers and business owners. A growing business is practically forced to upgrade their software and technologies used in their core processes in order to meet the needs of their newly established position.
The other reason that explains the common occurrence of inaction is budget. Action requires planning and money. The same applies to rolling out new software or upgrading the IT infrastructure. Businesses are usually focused on ROI and if the new upgrade does not promise a considerable ROI, they abandon it.
Another cause may be hidden in the complexity of the underlying business process. Making changes to well-established and delicate procedures is a risky operation. This is why businesses postpone new upgrades and new software roll outs as much as they can.
The Metrics Help You assess the Cost of Inaction
In order to get insight into the full picture regarding the cost of inaction, an organization must estimate the cost of reduction, avoidance and quality. It also has to calculate the opportunity lost and cost of frustration. Here are some more details about these metrics that can help you understand the importance of calculating them.
Let’s start with cost reduction. This one stands for hard costs representing real and measurable efficiency gains, along with benefits gained through consolidating several different systems into one (through software) and decrease in cost overruns.
Another important metric is cost avoidance. This one stands for all the costs that come as a consequence of specific errors that occur due to outdated software or infrastructure. Some of these are errors in data entry and data copying, lack of fast generated and accurate reports, and lack of efficient collaboration and communication.
Cost of quality comes as the third most important metric of the cost of inaction. It stands for all the costs that come as consequence of poor reporting, decisions made on incomplete or wrong data, lack of ability to substantiate the data received from numerous sources, inability to deliver products in time and lack of transparency of crucial business processes. So, the quality applies to both in-house process and the quality of service or product provided to customers.
Opportunity lost follows the decreased productivity of your staff, which makes them unable to capitalize on new opportunities (time wasted on actions which are not automated by your in-house systems).
Tedious manual work frustrates any workforce. And this usually happens when your staff doesn’t have the appropriate tools for their job. The cost that comes from this is conveniently named Frustration cost.
Hopefully, this information has helped you to understand what the cost of inaction is, what causes it and how you can quantify it. Once you have the value of the cost of inaction, you can easily assess the potential ROI of the new upgrade.
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