underestimated costs = underestimated risk
It’s fairly well-known that we weigh many different factors when making a buying decision – some logical, some emotional. When purchasing cloud computing, it is easy to fixate on the most obvious factor - the monthly fee – while developing a blind spot for many other key considerations. For many IT buyers who are used to big dollar projects, the relatively low up-front costs of cloud computing can be as distracting as a sparkling toy to a child. (Ooo…shiny!)
So how do you ensure you don’t overlook key considerations that are lurking in your blind spot when you’re buying a new IT system?
The other day I was talking with the enthusiastic corporate sponsor of a bank’s new cloud-based software system and he told me with the number of impacted staff, ‘the whole thing will only cost $100 per employee.’ When I asked him to describe the process by which this software was chosen, he giddily told me how easy a decision it was, given that the most they’d be out if it failed was $100,000 over the next two years. He was excited by how little risk to which his buying decision had exposed the bank, given how ‘cheap and easy’ it would be to implement.. (I repeat: Oooo….shiny!)
Does this sound familiar?
As our conversation continued, it became obvious that this bank executive was fixated on the $100 per employee cost. It’s how he got buy-in and it’s what he’ll be measured on at the end of the year. However, despite numerous attempts from a variety of people, no amount of persuasion could convince him that there were any other cost considerations besides the check he’d sent to the vendor. His tight focus on the $100 per employee number meant he wasn’t able to consider anything that might change how he calculated the true cost of the cloud investment. It was clear his emotions were affecting his thinking and by significantly underestimating the true cost of the bank’s IT investment, this corporate sponsor also significantly underestimated the amount of risk the bank faced if the project failed.
Industry estimates suggest the true cost of a cloud implementation is anywhere from 3 to 10 times the price of the system. To put that in hard numbers, even if the vendor is selling you the new system for only $100,000 per year, you’re staring down the barrel of a $300,000 to $1,000,000 in true costs.
And industry estimates suggest IT projects fail at a rate of 60 – 70%. (Oh. Not so shiny.)
Miscalculating an IT investment’s cost and opening up the organization to more risk means it’s even more important that you take action to make sure the system generates real value and capture a high ROI as soon as possible after go-live. After you adjust your estimated expenditures to reflect something closer to reality, you need a way to create value, produce positive ROI and mitigate the risk. How? It’s deceptively simple: get people to use the system. How do you do that? User adoption plans.
What It Means For You
When you consider all the costs of your cloud system, you probably have a lot more at risk than you originally expected. You therefore need to make sure you get more value from the system to justify the additional risk. You need to be able to demonstrate that your cloud system is being used and is creating real, measureable value. But how do you get people to use the system?
It’s really not about the technology, it’s about behavior. Changing the technology is the easy part (relatively). Changing peoples’ behavior takes a strategy and a way to execute that strategy, including having the organizational infrastructure, necessary skills, knowledge, experience, and, of course, executive support.
Things to Think About
- What non-subscription costs do you need to include when determining your true cost of your cloud investment? Where else are you spending your time, resource, money and effort to purchase, implement and support your cloud system?
As the saying goes, “Time is money”, so calculate it as such. In addition to the price of the software if nothing else, figure in the costs associated with the full disruption of this project, from initial research to cost of training for future employees, by including the following in your calculations:
- how many people are involved
- rate(s) of pay (or a blended average)
- for how many hours
- over how many months
- plus lost productivity
2. If your updated calculation has a higher cost basis, how does this affect your business case/ ROI forecast? What level of user adoption do you now need to make sure you get the benefits you need to justify the investment?
Many IT business cases fall down because they assume 100% user adoption. But what happens if you only get 40% effective adoption? 60%? 80%? Does your cloud investment still look attractive? Think about adjusting the business case for different levels of adoption, over various periods of time and see if the business case still makes sense.
3. Do you have a comprehensive strategy that ensures you reach your target level of user adoption? How will you ensure the highest rate of adoption possible? Do you have the resources, time, knowledge, skills or infrastructure to drive and sustain effective user adoption and achieve your ROI goals? If not, how will you get what you need?
- Take the User Adoption Challenge to see what specific user adoption issues you face on your IT project.
- Read "How to Sustain High CRM User Adoption" to learn more about how to have successful CRM (or other systems) implementations.
- Read "High Stakes Gamble: Many Organizations Bet on IT Success with only a 1 in 4 Chance of Winning"
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