The Unspoken Cost: Total Cost of Ownership in Organizations

While running an organization, we take ownership of many things knowingly and unknowingly, which is very much human by the way. But as a leader of the organization, it is also a moral responsibility that the organization's resources are not wasted.

In this article, I would like to discuss a cost that never gets discussed. But because it is not tracked, it may lead to losses. We all know the different costs we incur and track, but here is a list of costs that we may not be tracking at all -?

1. Cost of Quality
2. Cost of Hygiene and motivational factors in the Organization
3. Cost of bench
4. Cost of delayed decisions
5. Cost of hiring the wrong resources
6. Cost of taking on the wrong projects
7. Cost of purchasing the wrong tools stack

To add to the fire, these costs and their impact surface after a certain amount of time has lapsed and that cost of lost time can never be compensated for.?

After spending a lot of time helping myself and helping companies of various scales I have begun to understand that it is a necessary evil and one cannot really get rid of it completely.

So what is the way out to mitigate these uncontrolled costs?

“Building a repository of organisation wide data and driving function level insights”

First, we must sensitise everyone in the organization and institutionalize data hygiene along with taking care of the hygiene and motivation factors.

Based on the organization structure, people and material data must be accumulated and analyzed.

Just like this data is constantly generated, decision-making also happens constantly at an individual level and at a company level. We must institutionalize transparency so that while systems are being put in place to collect data, it does not come across as micro-management but more of a constructive exercise.?

“Imagine the time when everyone comes to office on time and leaves the office on time”

Here are some of the ways in which I believe organizations can get a handle on these costs:

• Work with your team to develop a plan for improving your company's ability to make strategic decisions more quickly. This could involve investing in new technologies, hiring additional staff, or implementing new processes and procedures.
• Consider conducting a benchmarking study to compare your company's performance to that of your competitors. This can help you identify areas where your company is falling behind and estimate the potential financial impact of improving in those areas.
• Conduct a cost-benefit analysis to determine the potential return on investment (ROI) of making strategic decisions more quickly. Consider the costs associated with hiring additional staff or investing in new technologies to help streamline decision-making processes.
• Analyze the impact of these delays on your company's revenue and profitability. Look at financial statements, project delivery data, resource billing data, time utilization, and other relevant metrics to determine how much money your company is losing due to not taking decisions on time.

Some of the frameworks that help to do a cost-benefit analysis are:

Net Present Value (NPV): This framework involves calculating the present value of the costs and benefits of a project or decision, taking into account the time value of money (i.e., the fact that a dollar today is worth more than a dollar in the future). The NPV is calculated by subtracting the present value of the costs from the present value of the benefits. A positive NPV indicates that the project or decision is likely to be financially beneficial.

Cost-Effectiveness Analysis (CEA): This framework involves comparing the costs of different interventions or projects with their outcomes, rather than assigning a monetary value to those outcomes. For example, a CEO might consider a strategic business client relationship over the per-hour resource billing cost charged to other customers.?

Benefit-Cost Ratio (BCR): This framework involves dividing the total benefits of a project or decision by the total costs. A BCR greater than 1 indicates that the project or decision is likely to be financially beneficial.

To understand if your resources are bleeding your organization then, you must follow the NPV.

The NPV framework considers the present value of the costs and benefits of a project or decision, taking into account the time value of money. Using the NPV framework, you can calculate the present value of the expected costs and benefits associated with allocating the wrong resources on an IT services project. You can then compare this NPV to the NPV of the expected costs and benefits associated with allocating the right resources.

If the NPV of allocating the wrong resources is negative, it indicates that the project is likely to result in a financial loss. This would suggest that resources should be allocated differently to improve the financial outcome of the project.

By using the NPV framework to assess the financial impact of wrong resource allocation, a company can make data-driven decisions and optimize resource allocation to minimize financial losses and maximize returns.

By taking these steps, you should be able to get a better understanding of the financial impact of delayed decision-making and develop a plan for improving your company's orbit shift journey.

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