Operations, technology and stakeholder value
Operations, technology and stakeholder value

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Operations, technology and stakeholder value

6.5 Costs

  • 11. What are the financial costs involved (capital and recurring)?

  • 12. What additional non-financial resources will be needed?

  • 13. When are the all the various financial and non-financial resources needed?

  • 14. What drawbacks or constraints does the proposal have?

There are many ways in which your proposal will incur financial costs, of which the following are typical, but this is by no means an exhaustive list:

  • capital purchase cost of equipment

  • cost of finance (e.g. interest on loans)

  • running costs of equipment

  • labour costs

  • training costs

  • materials costs.

It is important to show you have considered all potential costs. Detailed analysis will impress your audience and convince them that your proposal is thorough and accurate.

While most resources translate into financial cost, it is important to identify key resources because access to them may depend on more than the funding available. For example, the personnel you need may include key specialists with many other demands on their time from different projects.

It is not always an easy task to determine the cost of a process, yet very often an operations change is made on the grounds of reducing process costs. If a direct comparison between the ‘old’ and the ‘new’ process is possible, then it is easy to show, say, that less time is needed for a particular activity, and to infer cost savings from increased throughput. However, it is important to understand the relationship, if any, between time saved on a particular activity to the throughput time for the entire process. If there is a bottleneck elsewhere in the system, then time saved on one activity may not have any effect on the overall process.

Costing of an entire service or goods product is much more difficult, because of the need to apportion all overhead costs – those that are not directly attributable to one product or activity. Without this apportionment, the organisation's total costs might not be recovered by its sales revenue.

A significant cost often associated with the implementation of new technology arises from the organisational change that must take place for the technology to work effectively. Working practices may be changed quite dramatically, and there are various adjustment costs, including the cost of training staff in new methods, temporary losses in productivity while the new system beds in, and so on. Such costs are difficult to quantify in advance, but it is wise to make some contingency for them all the same.

Also under the category of costs – the debit side of the equation, where benefits are the credit – are any negative effects of your proposal. For example, you may be intending to make a change to a process that reduces financial costs – the benefit, but this also has the drawback of reducing process flexibility. You will need to show that such drawbacks are not significant in the overall scheme of things. These negative consequences need to be considered in the overall ‘cost-benefit analysis’. Such considerations form part of the anticipation of arguments against your proposal.

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