Overspending on Business Performance Management

Originally published May 13, 2009


In this economy, very few companies have money to spare. Why then are the majority of companies that are pursuing business performance management (BPM) spending significantly more than they need to? Perhaps they are simply unaware that some seemingly innocuous decisions can cause them to incur unnecessary costs. Let’s take look at the two major areas where companies are spending more than they should.

The Single Biggest Cost-Related Decision

An issue that is confronted early on by almost every company implementing business performance management is whether or not to utilize expertise. This runs the gamut from purchasing research reports to leveraging consultants for BPM-specific best practices and experience. There are well documented cases of many companies that have saved much time and money by leveraging the experience of BPM experts. For many companies though, this option is often rejected out of hand. In some organizations, no analysis is done before they make this very important decision. In a misdirected attempt to save their company’s money, project managers will opt to advance on a project based upon their limited experience in similar software deployments. These well-intentioned individuals will often cost their companies much more money by making ill-informed decisions than what believe they have “saved.” Blanket statements such as “our policy is to not use consultants” or “we have had a bad experience with consultants in the past” often rule the day. While some companies certainly have been burned in the past by expensive consultants that produced nothing more than a big stack of binders, it just means that they need to do a better job of evaluating and selecting consultants. There is too much potential value to write off an entire industry.

More thoughtful companies attempt to do a cost/benefit analysis. Unfortunately the analysis most companies perform to make this decision is flawed. They look at the real costs of expertise (quoted to them by consultants and analysts) but inadequately estimate the costs of not using expertise, which is often much higher. For example, the real cost of a small team spinning their wheels for months because they went down a blind alley or got caught by an unanticipated pitfall can be very high. Cost in this case can be measured by their fully loaded salary and benefits, or the opportunity cost of them not being available to perform some other high value analysis tasks. There is also the “cost” of delayed time to payback. If the new BPM system is calculated to save, for example, $50,000 a month in reduced labor costs, then a two-month delay while the team stumbles through a trial-and-error approach can be very costly. That doesn’t even take into account unanticipated savings that BPM systems typically deliver such as finding potentially expensive accounting errors, identifying unnecessary expense savings and productivity improvements, as well as revenue upside opportunities. Who can afford to delay any of these benefits?

In addition, without appropriate help and guidance, it is very easy to buy the wrong software or too much software, or maybe even too much of the wrong software. This can be an extremely costly mistake that has cost companies millions and project managers their jobs.

Software Purchasing Missteps

More companies than ever are purchasing BPM software without even going through a vendor evaluation. Or if they do evaluate vendors, it’s a superficial review of demos without even having developed requirements. That’s right, hundreds of thousands, or in some cases millions, of dollars are being spent without any attempt to determine if the software actually meets their requirements. If I caught someone doing that in my company, they would have a very short career with us. Yet in many companies, it is actually the CFO or other senior management that is driving this approach. Again, in a backwards view of saving time and money, they want to jump right to the purchase decision and not waste time on research and evaluation. What’s driving this is the false belief that all BPM software is alike and that if you go with one of the premium vendors, there is very little risk of failure. While that is not really true, what is true is that with this approach you will probably spend much more than you need to on software.

While there is a high probability that a system purchased without referencing a detailed set of requirements won’t meet all of those requirements, it is even more likely that you will overpay. Today there is a robust group of less expensive BPM vendors with fully functional solutions covering all BPM application areas that could be an alternative to premium-priced vendors. According to our annual BPM Pulse survey, their customer satisfaction ratings are generally higher than that of their better known and larger competitors. They have hundreds, and in some cases thousands, of customers who provide positive references. Most importantly, their prices are usually far less. How is this possible and why doesn’t everyone buy from them? The answer to both of these questions is actually the same. These vendors do not maintain the same size salesforce or marketing budgets as the larger vendors. Their costs are, therefore, lower and they can charge less. However, they pay a price for this – less sales coverage and reduced market awareness. Combine that with an approach to vendor selection that doesn’t even consider requirements, and you can see how everyone loses all around.

Let’s say though that you are a large company with complex requirements and it makes sense to buy a solution from one of the premium vendors. Are there still ways to reduce costs? Yes. Many companies, no matter the size of the BPM vendor, buy more seats or modules than they need. While your initial rollout may be targeted at 50 users, it may be very tempting to buy those additional 200 seats that are planned for the future if the price is attractive enough. What you need to take into account though, is that in many cases the rollout to additional users takes much longer than planned. Working out kinks in the system, updating and enhancing reports, calculations, the chart of accounts, etc. before the broader rollout is fairly common. Fitting in training to these new users usually needs to align with other activities. All of this often delays the actual rollout. So what is the cost of buying the extra seats too early? First of all, there is the cash investment aspect. The vendor has your money instead of you. Consequently, you are not able to invest or redeploy it until you actually need the seats. Then there are the ongoing license renewal and maintenance (LR&M) fees. These costs are usually calculated based on what you purchased, not what you deployed. You could be paying LR&M for years on seats not yet used. Lastly, what happens if between the purchase and rollout, your company is downsized or acquired and you never need those seats?

In addition, companies caught up in the euphoria of their BPM purchase sometimes buy more modules than they need. While buying a planning solution, for example, they may add in a profitability optimization tool as well. If it’s not in the requirements or you haven’t figured out beforehand how it’s going to be used or who is going to use it, you probably never will actually use it. Buy it when you have actually defined the need for it.

Today it’s even possible that your company has all the software they already need. Many companies have several BPM solutions already in use in different parts of the organization. You may not need to buy a whole new solution, but rather just additional seats or modules for an existing solution. Coming back to my initial point about expert guidance, a consulting firm not aligned with any vendors can be the best judge of what software, if any, you actually need to purchase and can then point you to the most cost-effective solutions.

With a little research, analysis, and leveraging the right kind of help, business performance management can be done very cost-effectively. In today’s economic environment, every company should make sure they do BPM right – and at the right price.

SOURCE: Overspending on Business Performance Management

  • Craig SchiffCraig Schiff

    Craig, President and CEO of BPM Partners, is a pioneer in business performance management (BPM). Craig helped create and define the field as it evolved from business intelligence and analytic applications into BPM. He has worked with BPM and related technologies for more than 20 years, first as a founding member at IMRS/Hyperion Software (now Hyperion Solutions) and later cofounded OutlookSoft where he was President and CEO.

    Craig is a frequent author on BPM topics and monthly columnist for the BeyeNETWORK. He has led several jointly produced webcasts with Business Finance Magazine including "Beyond the Hype: The Truth about BPM Vendors," the three-part vendor review entitled "BPM Xpo" and "BPM 101: Navigating the Treacherous Waters of Business Performance Management." He is a recipient of the prestigious Ernst & Young Entrepreneur of the Year award. BPM Partners is a vendor-independent professional services firm focused exclusively on BPM, providing expertise that helps companies successfully evaluate and deploy BPM systems. Craig can be reached at cschiff@bpmpartners.com.

    Editor's Note: More articles and resources are available in Craig's BeyeNETWORK Expert Channel. Be sure to visit today!

Recent articles by Craig Schiff



 

Comments

Want to post a comment? Login or become a member today!

Posted November 13, 2009 by Anonymous

Wonderfull article, where the truth is told.

Many companies just buy from the big vendors and use the salespeople as their adivisers. The result is known: expensive and not up to the task.

Is this comment inappropriate? Click here to flag this comment.