Thursday, March 5, 2015

Agile Manifesto and 12 Principles

Agile Manifesto Values at a Glance:

Individuals and interactions over processes and tools
Working software over comprehensive documentation
Customer Collaboration over contract negotiation
Responding to change over following a plan

Agile 12 Principles behind the Agile Manifesto:


  1. Our highest priority is to satisfy the customer through early and continuous delivery of valuable software.
  2. Welcome changing requirements, even late in development. Agile processes harness change for the customer's competitive advantage.
  3. Deliver working software frequently, from a couple of weeks to a couple of months, with a preference to the shorter timescale.
  4. Business people and developers must work together daily throughout the project.
  5. Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.
  6. The most efficient and effective method of conveying information to and within a development team is face-to-face conversation.
  7. Working software is the primary measure of progress.
  8. Agile processes promote sustainable development. The sponsors, developers, and users should be able to maintain a constant pace indefinitely.
  9. Continuous attention to technical excellence and good design enhances agility.
  10. Simplicity - the art of maximizing the amount of work not done - is essential.
  11. The best architectures, requirements, and designs emerge from self-organizing teams.
  12. At regular intervals, the team reflects on how to become more effective, then tunes and adjusts its behavior accordingly.


Tuesday, February 17, 2015

Kanban, Kaizen, and Yokoten


Kanban:




Kanban (かんばん(看板)?) (signboard or billboard in Japanese) is a scheduling system for lean and just-in-time (JIT) production. Kanban is a system to control the logistical chain from a production point of view, and is not an inventory control system. Kanban was developed by Taiichi Ohno, at Toyota, as a system to improve and maintain a high level of production. Kanban is one method to achieve JIT.

Kanban became an effective tool to support running a production system as a whole, and an excellent way to promote improvement. Problem areas are highlighted by reducing the number of kanban in circulation. One of the main benefits of kanban is to establish an upper limit to the work in progress inventory, avoiding overloading of the manufacturing system.

Kaizen:



Kaizen (改善?), In Japanese for "good change". It has been applied in healthcare, psychotherapy, life-coaching, government, banking, and other industries. When used in the business sense and applied to the workplace, kaizen refers to activities that continually improve all functions and involve all employees from the CEO to the assembly line workers. It also applies to processes, such as purchasing and logistics, that cross organizational boundaries into the supply chain. By improving standardized activities and processes, kaizen aims to eliminate waste. Kaizen was first implemented in several Japanese businesses after the Second World War, influenced in part by American business and quality management teachers who visited the country. It has since spread throughout the world and is now being implemented in environments outside of business and productivity.


Kaizen is the practice of continuous improvement. Kaizen was originally introduced to the West by Masaaki Imai in his book Kaizen: The Key to Japan’s Competitive Success in 1986. Today Kaizen is recognized worldwide as an important pillar of an organization’s long-term competitive strategy. Kaizen is continuous improvement that is based on certain guiding principles:

  • Good processes bring good results
  • Go see for yourself to grasp the current situation
  • Speak with data, manage by facts
  • Take action to contain and correct root causes of problems
  • Work as a team
  • Kaizen is everybody’s business


One of the most notable features of kaizen is that big results come from many small changes accumulated over time. However this has been misunderstood to mean that kaizen equals small changes. In fact, kaizen means everyone involved in making improvements. While the majority of changes may be small, the greatest impact may be kaizens that are led by senior management as transformational projects, or by cross-functional teams as kaizen events.

Yokoten (Yoko ten kai):


In Japanese, Yoko - Horizontal, Lateral, Sideways; Ten kai - Develop, Deploy, Advance
Yokoten is a process for sharing learning laterally across an organization.

Yokoten means "horizontal deployment" and refers to the practice of copying good results of kaizen in one area to other areas. Yokoten applies more broadly to copying product design ideas as well as better practices in general. "Best practice sharing" comes close to the meaning of yokoten.

The corresponding image is one of ideas unfolding across an organization. Yokoten is horizontal and peer-to-peer, with the expectation that people go see for themselves and learn how another area did kaizen and then improve on those kaizen ideas in the application to their local problems. 



Kaizen must result in a standard, and yokoten means standards must be copied by others. However it is not enough to copy good kaizens as is, one must adapt and improve the learning for one's own process. Yokoten is not only to copy the physical best practice process but also the thinking that resulted in success and any background information (how it was achieved).
Within the 8 step practical problem solving process known as TBP (Toyota Business Practice) the yokoten activity happens in step 8.

1. Clarify the problem
2. Break down the problem
3. Set a target
4. Analyze the root cause
5. Develop countermeasures
6. See countermeasures through
7. Evaluate both results and process
8. Standardize successes, learn from failures

Wednesday, January 28, 2015

5 Whys

Getting into the root of a problem quickly

The 5 Whys is a simple problem-solving technique that helps users to get to the root of the problem quickly. Made popular in the 1970s by the Toyota Production System, the 5 Whys strategy involves looking at any problem and asking: "Why?" and "What caused this problem?"
Very often, the answer to the first "why" will prompt another "why" and the answer to the second "why" will prompt another and so on; hence the name the 5 Whys strategy.

Benefits of the 5 Whys include:

  • It helps to quickly determine the root cause of a problem.
  • It is easy to learn and apply.
  • How to Use the Tool:

When looking to solve a problem, start at the end result and work backward (toward the root cause), continually asking: "Why?" This will need to be repeated over and over until the root cause of the problem becomes apparent.



Tip:
The 5 Whys technique is a simple technique that can help you quickly get to the root of a problem. But that is all it is, and the more complex things get, the more likely it is to lead you down a false trail. If it doesn't quickly give you an answer that's obviously right, then you may need more sophisticated technique problem solving techniques like those found in our problem solving section.

Example:



Following is an example of the 5 Whys analysis as an effective problem-solving technique:

  1. Why - is our client, ABC Corp., unhappy? Because we did not deliver our services when we said we would.
  2. Why - were we unable to meet the agreed-upon timeline or schedule for delivery? The job took much longer than we thought it would.
  3. Why - did it take so much longer? Because we underestimated the complexity of the job.
  4. Why - did we underestimate the complexity of the job? Because we made a quick estimate of the time needed to complete it, and did not list the individual stages needed to complete the project.
  5. Why - didn't we do this? Because we were running behind on other projects. We clearly need to review our time estimation and specification procedures.


Key Points:

The 5 Whys strategy is an easy and often-effective tool for uncovering the root of a problem. Because it is so elementary in nature, it can be adapted quickly and applied to most any problem. Bear in mind, however, that if it doesn't prompt an intuitive answer, other problem-solving techniques may need to be applied.

Tuesday, December 30, 2014

My Diary - 2014

2014 is a great year for me, it pushed my time as simple as that.. there were valuable life time initiatives that were started as part of my dream. My endeavors should tell the future world - how better i must be achieving it successfully!
I believe, anybody would feel happy, when their dreams come true.. though its very late and the end state should matter! I love happy ending stories, its actually a beginning! :)

Yes, there were turbulence' haunting my health, time had taught me again.. how to sustain and fight against them, but i admit still i'm a novice and good learner. Situations resulted in changes of my priorities and helped me to balance all the challenges rightly and focusing only on what i was in need. It also appraised me to surrender with all my ego's valuing relationship is the de-facto in human race. True, that its helping me to reconnect with world and friends as fast as i can for and with a good cause! :)

There were quick and happiest moments in my family book: Wedding bells, Kid's 1st cake cutting and Lullabies and so on! :-D



Welcome - 2015




I, welcome 2015 warmly with the same spirit to Grace My Goals and Dreams to come true with Success on time. May God Bless to keep Me and All My Family & Friends a Good Health, and to Shower - Prosperity, Happiness, Love and Bundles of Joy!

Remembering the following Mantra's by great leaders of the world to keep me going!

“What is not started today is never finished tomorrow.” 
“Difficulties increase the nearer we approach the goal.” – Johann Wolfgang von Goethe

“Strive not to be a success, but rather to be of value.” – Albert Einstein

I'm ready to begin another new chapter and remembering that i have only 365 days to make every page of the chapter worth remembering when i finish the year!! A Great year ahead!!


Wishing You And Your Family A Very Happy New Year - 2015




Good Luck!

Wednesday, December 10, 2014

Team Management Skills

The core skills needed to manage your team



Develop effective management skills:

So you've just got a new job as a manager or supervisor. Congratulations! Or, maybe you've just been given the task of pulling a new team together. What a challenge!
Either way, whether your team exists already, or whether it's your responsibility to create it, what do you do next?



This article looks at some of the key things that team managers need to do if their team is to thrive and succeed. These range from choosing the right people and deciding who does what, to communicating with, developing and motivating people. It also covers some of the most common pitfalls to be avoided.

First Things First

But before that, some definitions are useful. What is Management, exactly? And how does it differ from leadership?



A good starting point is the Warren G. Bennis quote that "Leaders do the right things, while managers do things right." What this means is that leadership involves setting direction, communicating that vision passionately to those they work with, and helping the people they lead understand and commit to that vision. Managers, on the other hand, are responsible for ensuring that the vision is implemented efficiently and successfully.
Of course, these two roles overlap considerably – and what's best is when you fulfill both roles. However, the focus here is on the specific skills and responsibilities of managers, and the tools available to them. After all, there's no point energizing people to work towards a fabulous vision of the future, only to fall flat on your face when it comes to implementation.

Who do you need in your team?



The top priority for team managers is delegation. No matter how skilled you are, you're just one person, while your team may be made up of many people. So it is absolutely essential that you have the right people on your team and delegate as much as possible to them.
Successful delegation starts with matching people and tasks, so you need first to understand fully what the team's role and goals are. Only then will you be in a position to analyze the skills, experience and competencies within your team, and start matching people to tasks.
If you've had to bring in a substantial number of new people, read (forming-storming-norming-and-performing) to understand the stages you can expect the team to go through on the road to successful performance.

Note:
Many new managers and supervisors reading this article will be taking over the management of an existing team rather than bringing together a new one. However, it's worth considering how you would put together your ideal team if you had the opportunity, so you fully understand the issues you may face.


Briefing your team:

Now that you've got your team together, you need to make sure that they're as clear as you are about what you're all there for. In the book Monday Morning Mentoring, a wise coach advises a young manager that he must always know what the "main thing" is that his team are working to achieve, and should focus closely on this so that they all "keep the main thing the main thing".
A good way of doing this is by putting together a team charter which sets out the purpose of the team and how it will work. Not only does this help you get your team off to a great start, it can also be useful in bringing the team back on track if it's veering off course.

Motivating your team:

Another key duty you have as a manager is to motivate team members. Theory X and Theory Y explains two very different approaches to motivation.
Whatever approach you prefer to adopt, you also need to bear in mind that different people have different needs when it comes to motivation. Some individuals are highly self-motivated, while others will under-perform without managerial input. Pygmalion Motivation (pygmalion-in-management) helps to understand how to motivate these different groups.

Developing your team:

Teams are made up of individuals who are all at different stages of their careers. Some may find the tasks you've allocated to them are challenging, and they may need support. Others may be "old hands" at what they're doing, and may be looking for opportunities to stretch their skills. Either way, your responsibility as a manager is to develop all of your people.
Your skills in this aspect of management will define your long-term success as a manager. If you can help team members to become better at what they do, you will soon become known as a manager that others want to work for, and you'll be making a great contribution to your organization too.
The most effective way of doing this is to ensure that you give regular feedback to members of your team on their work. Many of us are nervous of giving feedback, especially when it has to be negative. However, if you give and receive feedback regularly, everyone will come to benefit from improved performance.

Communicating and working with your team – and with others:

Communication skills are essential for success in almost any role, but there are particular skills and techniques which you'll use more as a manager than you needed to when you were a regular "worker". These fall under two headings: Communicating and working with those within your team; and Communicating and working with people outside your team. We'll look at each in turn.

Communicating and working with your team:

As the team manager, you're likely to be chairing a number of meetings involving your team, including regular sessions as well as one-off meetings. Meeting of all kinds, and regular ones in particular, are notorious for their capacity to waste people's time, so the skill of running effective meetings is well worth mastering.
Many meetings include brainstorming sessions, and as team manager, you'll often have to act as moderator, so you'll need to be comfortable with how to do this. There's more to it than simply coming up with creative ideas, as you do when you're just a regular participant in such a session.
Another important skill for managers and others – to master is active listening. When you're in charge, it can be easy to think that you know what others are going to say, or that listening is less important because you've thought of a solution anyway. Don't fall into this trap. Most good managers are active listeners: It helps them avoid time waster through misunderstandings, and it builds good relationships within the team.

Communicating and working with others:

One of the most important people you need to communicate with effectively is your own boss. Take time to understand fully what your boss wants from you and your team. If you know exactly what he or she likes, and how he or she prefers it to be delivered, you'll be better able to meet with his or her approval.
Don't be afraid to ask your boss to coach or mentor you: You can usually learn a lot from your boss, but he or she may not be proactive about offering this. If you're approaching your boss for advice, make sure you've thought things through as far as you can. Introduce the subject with a summary of this thinking, and then say where you need help.
Also, as a manager, part of your job is to look after your team and protect it from unreasonable pressure. Learn skills like assertiveness and win-win negotiation so that you can either turn work away, or negotiate additional resources.
Another part of your job is to manage the way your team interacts with other groups. Use stakeholder analysis to identify the groups you deal with, so that you can identify what they can do for you and what they want from you.

Managing discipline:



However much you hope you won't ever have to do it, and however much feedback you give, there comes a time in most managers' careers when they have to discipline an employee. Discipline may be subtly different from basic feedback because it doesn't always relate specifically to the employee's work. You can give feedback on their phone manner, for example, but handling problems with timekeeping or personal grooming can need a different approach.
Obvious breaches of the law or of company policy are easy to identify and deal with. But what of other situations? On one hand you don't want to feel or seem petty. On the other hand, you can't let things go that should be dealt with.
Use these rules-of-thumb to help you decide whether you need to take action. If the answer to any is yes, then you need to arrange a time to speak to the employee in private.

Does the issue affect the quality of the employee's deliverable to the client (internal or external)?

A graphic designer regularly only gets in to work late, although he stays late to make up for this. Customers are sometimes frustrated by not being able to get through to him at the start of the day when he's working on rush jobs.
Does the issue adversely impact the cohesiveness of the team?
Individual designers largely work on their own projects with few meetings between design team members, so cohesiveness is not impacted. However people are noticing his lack of punctuality, and other people's timekeeping is beginning to slip.
Does the issue unnecessarily undermine the interests of other individuals in the team?
The designer sitting next to the latecomer is unhappy that she has to field calls from clients before he reaches the office, and is unable to give a firm answer to the question "When will he be in?"
The design team manager decides to speak to the latecomer because of the impact on his co-worker. They agree that coming in to work late is not a problem (he has a long commute, with heavy traffic en route) but that he will commit to being in by 9.30am every day to reduce the number of calls his co-worker has to field, and also give her a fixed time to give clients. He will also work late to make up time.
When you are faced with a potential discipline issue, take the time you need to gather information about the situation, then decide what you're going to do and act. Discipline issues rarely go away of their own accord, and they usually get worse, often causing considerable unhappiness and resentment amongst other team members.

Traps to Avoid

The following pitfalls are common ones that managers fall into. Take care to avoid them!

  • Thinking that you can rely on your existing job knowledge and technical skills to succeed as a manager. It is essential that you develop management and people skills.
  • Failing to consult regularly with your boss, in a misguided attempt to show that you're competent and can cope on your own. However, when you approach your boss, make sure you've thought the issue through, and have some ideas as to how the problem can be solved.
  • Embarrassing your boss, or letting him or her get a nasty surprise. Follow the "no surprises" rule.
  • Doing anything that requires your boss to defend you to others. This will cost your boss in terms of political capital or "loss of face" with his or peers and superiors, and it makes him or her look bad for not "nipping the problem in the bud."
  • Failing to talk to your customers (whether internal or external) about what they want from you and your team, and failing to act on this.
  • Using your authority inappropriately. Make sure that everything you ask people to do is in the interests of the organization.

Many of these points may sound common sense, however it's incredibly easy to make these mistakes in the rush of everyday managerial life.

Key Points:



When you move from being a worker to a line manager, you need to develop a new set of skills, and make use of new tools and techniques. These will help you with the key management areas of organizing, motivating, developing and communicating with your team.
You also need to learn specific time management techniques relevant to your role as a manager. It can be helpful too, for you to understand the different managerial styles that are commonly found so that you understand where your natural approach lies, and can work best to improve on this.

Thursday, November 20, 2014

Why Do Projects Fail?

Learning How to Avoid Project Failure





We can probably all think of projects that have "failed" - perhaps processes got worse rather than better, maybe they were cancelled because of cost overruns, or perhaps systems were launched with fundamental errors.
How do you know when - and why - a project has failed? In many cases, the reason for failure is obvious. However, the definition of failure isn't always clear: one project with a significant delay might be described as a failure; yet another, with a similar delay, might be seen as a stunning success.

Definition of Project Failure

A project is considered a failure when it has not delivered what was required, in line with expectations. Therefore, in order to succeed, a project must deliver to cost, to quality, and on time; and it must deliver the benefits presented in the business case.
The requirements for success are clear and absolute - right? Unfortunately, it's not that simple. Because the second part of our definition of success is that the project must be delivered "in line with expectations."
If key stakeholders agreed that a project had to exceed its initial budget, the project may still be considered a success. Likewise, if a project delivered everything that was in the detailed project designs, it may still be considered a failure if it didn't include vital elements that the key stakeholders needed. This doesn't seem fair, but project success and failure isn't just about the facts, nor is it simply about what was delivered. It's also, crucially, about how the project is perceived.


Reasons for Project Failure




Here are some of the main reasons why projects fail:
  • The wrong business requirements have been addressed 
    If your project is set up to deliver the "wrong thing," it may be considered a failure even if everything is delivered on time, within budget, and to the required quality. This seems harsh. But if your project doesn't deliver what the organization really needs, this will inevitably negatively affect how it's perceived. This is why it's so important to conduct a thorough business requirements analysis.
  • It's not possible to deliver the business case
    If your business case can't be delivered, then you have an impossible task. To make things worse, after the business case is approved, delivery of other things then becomes dependent on your project. This makes changing your project's deadlines, budgets and expectations more difficult.
  • For example, once you've promised to deliver a new airport baggage management system, airlines may schedule additional flights for shortly after the system's launch, so that they can take advantage of the new capacity. If the baggage system doesn't work, or if it has major problems during testing, it may be hard to convince senior managers to allow the project to be delayed, because they will have to give up promised increased revenue.
  • When you write your business case, make sure you think through the project requirements in detail, and identify what's needed to ensure that you can deliver those requirements. Don't just list assumptions - make sure you explore them thoroughly. Review other, similar projects, so that you don't forget any major items. If you're delivering a new system, review your hardware and interface requirements. If you have major risks, include sufficient contingency resources (people, budget, and time) to manage those risks appropriately. Remember that implementing change is hard!
  • Be realistic, and be ready to have some difficult conversations. For instance, your CEO may be disappointed that he can't have what he wants before the year end, or key users may say that they really need a fully featured product at the end of phase one. However, it will be a lot harder to have these conversations at a future date, when your project is in trouble!


Note: In many cases, business case documentation is written before a project manager is assigned. If you're the incoming project manager, make sure you don't simply accept these documents as they are!
You're responsible for delivering the project, so be sure to review the business case. Validate assumptions, and identify any gaps or areas that need more detail. If difficult conversations are needed, have them now. Once deadlines, requirements, and budgets are set, expectations are much more difficult to change!
  • Governance is poor 
    Few projects ever start without a sponsor. This is the person who has identified the need for change in an area of the business, and who is committed to making that change happen. He or she plays a vital role in ensuring the project's success. A good sponsor can make an average project fantastic, and a poor sponsor can delay and frustrate a fantastic project team.
  • The project sponsor is supported by the project's governance bodies, usually in the form of a steering group. These governance roles are essential: they provide direction, guidance, and critical review of the project and its progress. As project manager, you're involved in the day-to-day running of the project, but governance groups can take a step back and look at the project from a different perspective. They can ask difficult questions about progress and performance. They may see things that you've overlooked. However, they can also support you by providing contacts and insights that help you get things done, and by providing "political cover" when you need it.
  • Project managers don't usually have any influence over who their project sponsor is. Sponsors either self-select, or they're chosen because of their position in the organization. However, you often have more influence over who is in your steering group. As such, if you know that your project sponsor lacks passion for the project, or if the sponsor doesn't like to say no to people who keep trying to expand the project scope, then make sure you balance this with tougher or more engaged steering group members.
  • Implementation is poor 
    If you deliver your project competently, you'll avoid poor implementation - right? Unfortunately, it's not that clear. Delivery can be complex. You need to manage risks, issues, and scope; manage your team; and communicate with stakeholders.
  • Delivering change is hard, and not everything is in your control. Therefore, being competent isn't enough for good implementation, but it's a good start! There are a lot of tools available to help you. Take our quiz on your project management skills to get started.
  • People lose focus on the project's benefits 
    Projects are based on a list of benefits that must be delivered. For example, you may need a faster customer service process, you may need to produce products more cheaply, or you may need to improve the quality of your service. These benefit statements should be refined so that they're clear, concise, and quantified.
  • From these benefit statements, a set of "things to do" is generated. For example, you may need to consult customers, redesign products, or implement a new system. The outcome of this is a business case document that analyzes the project in terms of costs, and of the benefits will be delivered.
  • The project team then focuses on detailed planning, and on delivering the line items in the project plan - building a new system, developing training packs, mapping out new processes, and so on. At this stage, the team may forget about the benefit requirements.
  • This often results in a project deliverable that's well built, but doesn't provide the necessary benefits. For example, if the project plan focuses on designing and building a system, you could get a fantastic system, but one that's not being used by the business.
  • To avoid this problem, adopt a benefits management approach throughout the life of the project, and remember the need to deliver the required benefits when you're planning and delivering your project.
  • The environment changes 
    This is probably the trickiest area. If the business's needs change, then your business case can become outdated before you've actually completed the project. You may have to review your original requirements and goals partway through the project to decide how to proceed, and this may result in changing the scope of your project - or even canceling the project altogether!
  • If you're working in an environment that's changing fast, you can help reduce the risks by doing the following:
    • Making timely decisions - If the project is clearly not going to be able to deliver the revised requirements, don't ignore this. The sooner you communicate this, and the sooner you make a decision about the project's future, the better.
    • Considering smaller projects- It's more difficult to change direction in a large cruise ship than in a tugboat. So, think about whether a proposed project's scope and delivery timeline are appropriate within your business environment. Delivering projects in smaller pieces is not always appropriate, but it's worth considering.
    • Managing expectations - Just because you cancel a project does not automatically mean that the project is considered a failure. This depends on many factors, including how you manage the involvement of key project stakeholders in the decision-making process.

Key Points



For a project to be successful, it's not enough simply to manage your project competently, and deliver a good quality product. To avoid failure, make sure you have identified the right business requirements, created an achievable business case, put strong project governance into place, managed a high-quality implementation, focused on benefits, and monitored your changing environment.
Above all, be sure to manage the expectations of your stakeholders, so that they stay supportive. After all, these are the people who will declare your project to be successful – or otherwise.


Saturday, November 15, 2014

Benefit Cost Analysis (BCA)

Evaluating Quantitatively - Whether to Follow a Course of Action!





You may have been intensely creative in generating solutions to a problem, and rigorous in your selection of the best one available. This solution may still not be worth implementing, as you may invest a lot of time and money in solving a problem that is not worthy of this effort.
Benefit Cost Analysis (BCA) or Cost Benefit Analysis (CBA) is a relatively simple and widely used technique for deciding whether to make a change. 



As its name suggests, to use the technique simply add up the value of the benefits of a course of action, and subtract the costs associated with it.



Costs are either one-off, or may be ongoing. Benefits are most often received over time. We build this effect of time into our analysis by calculating a payback period. This is the time it takes for the benefits of a change to repay its costs. Many companies look for payback over a specified period of time – e.g. three years.



In its simple form, cost-benefit analysis is carried out using only financial costs and financial benefits. For example, a simple cost / benefit analysis of a road scheme would measure the cost of building the road, and subtract this from the economic benefit of improving transport links. It would not measure either the cost of environmental damage or the benefit of quicker and easier travel to work.

A more sophisticated approach to cost/benefit measurement models is to try to put a financial value on intangible costs and benefits. This can be highly subjective – is, for example, a historic water lake worth $25,000, or is it worth $500,000 because if its environmental importance? What is the value of stress-free travel to work in the morning?

These are all questions that people have to answer, and answers that people have to defend.
The version of cost/benefit analysis we explain here is necessarily simple. Where large sums of money are involved (for example, in financial market transactions), project evaluation can become an extremely complex and sophisticated art. COST Management is one of the Key Processing Areas of Project Management. 

Example:



A sales director is deciding whether to implement a new computer-based contacts management and sales processing system. His department has only a few computers, and his salespeople are not computer literate. He is aware that computerized sales forces are able to contact more customers and give a higher quality of reliability and service to those customers. They are more able to meet commitments, and can work more efficiently with fulfillment and delivery staff.

His financial cost / benefit analysis is shown below:

Costs:

New computer equipment:
  • 10 network-ready PCs with supporting software @ $2,450 each
  • 1 server @ $3,500
  • 3 printers @ $1,200 each
  • Cabling & Installation @ $4,600
  • Sales Support Software @ $15,000
Training costs:
  • Computer introduction – 8 people @ $400 each
  • Keyboard skills – 8 people @ $400 each
  • Sales Support System – 12 people @ $700 each
Other costs:
  • Lost time: 40 man days @ $200 / day
  • Lost sales through disruption: estimate: $20,000
  • Lost sales through inefficiency during first months: estimate: $20,000
Total cost: $114,000

Benefits:
  • Tripling of mail shot capacity: estimate: $40,000 / year
  • Ability to sustain telesales campaigns: estimate: $20,000 / year
  • Improved efficiency and reliability of follow-up: estimate: $50,000 / year
  • Improved customer service and retention: estimate: $30,000 / year
  • Improved accuracy of customer information: estimate: $10,000 / year
  • More ability to manage sales effort: $30,000 / year
Total Benefit: $180,000/year

Payback time: $114,000 / $180,000 = 0.63 of a year = approx. 8 months

Tip:

The payback time is often known as the break even point. Sometimes this is is more important than the overall benefit a project can deliver, for example because the organization has had to borrow to fund a new piece of machinery. The break even point can be found graphically by plotting costs and income on a graph of output quantity against $. Break even occurs at the point the two lines cross.




Inevitably the estimates of the benefit given by the new system are quite subjective. Despite this, the Sales Director is very likely to introduce it, given the short payback time.

Key Points:




  • Cost/Benefit Analysis is a powerful, widely used and relatively easy tool for deciding whether to make a change.
  • To use the tool, firstly work out how much the change will cost to make. Then calculate the benefit you will from it.
  • Where costs or benefits are paid or received over time, work out the time it will take for the benefits to repay the costs.
  • Cost/Benefit Analysis can be carried out using only financial costs and financial benefits. You may, however, decide to include intangible items within the analysis. As you must estimate a value for these, this inevitably brings an element of subjectivity into the process.