What To Do When The Numbers Don’t Make Sense
Last week I spent quite a bit of time explaining budgeting to a client as it relates to software evaluation and implementation…wasn’t the first time I had been through this with them.
The problem was when I spoke with them in February, I used a plural and they only heard a singular.
Here’s what I said: You need to make sure and prepare your software budget(s) before you start the evaluation process.
They heard ‘budget’ – singular…and because of this, things have gotten a little gummed up.
There are actually two budgets that need to be created.
The first budget is the software evaluation and acquisition project budget. This is how much you are going to invest in fact finding and evaluation.
The second budget is the actual software acquisition and implementation budget - this includes all costs (hardware, software, consultants, present value of license fees, etc.). This second budget often is wrapped into a formal return on investment calculation. The expected return can drive the investment amount, which in turn drives the maximum amount the company is willing to invest in software.
It is within the realm of possibility that after you get preliminary numbers from software vendors (this is the vendor long list process discussed in my book), that the acquisition costs are sufficiently high to NOT warrant acquiring new software. The numbers don’t make sense – in other words, the expected returns are not high enough relative to the cost of acquisition.
My client prepared the project budget…but never went through the process of trying to quantify the benefits that would accrue with a new system.
They are still going through with their software effort…but from a corporate standpoint, they don’t know why they are, and what they expect to gain.
Was an uncomfortable conversation, but one that was necessary and educational.