When to Buy New Software

See Also:
How to Choose New Software
How to Choose a Software Dealer
Technology Assessment Criteria
Technology Strategy for Small to Medium Sized Companies
How to Ensure Redundant Data Communications Links

When to Buy New Software?

We hear this question a lot. We usually talk about the symptoms associated with the need for a software purchase and we will here as well. Actually the symptoms all add up to one big diagnosis – you need new software when your cost to continue on your current path exceeds the price of the new software

Wow, that really sounds simplistic. It is. The catch is determining your Cost to Do Nothing. Often owners feel that if they aren’t writing a check, their current methods aren’t costing them money. The reality is that you could easily uncover enough cost savings to pay for your new software.

Cost To Do Nothing

Let’s look at some ways to discover the Cost to Do Nothing:

• From the broad view, look at the infrastructure of your organization. If you are planning to grow, will the infrastructure support the additional stresses that growth requires? How many people will you need to add? Could new software make your current staff productive enough to reduce or eliminate the new staffing needs?

• Circle down a level that look at the amount of daily work that is either entered into your system by hand or is retrieved from your system and manipulated by hand into another form.

• While you’re at this level, check out the work flow from department to department. Are there bottlenecks and disconnects in flow. Each time another person enters the same data adds to the Cost of Doing Nothing.

• Another telling observation is to count the number of spread sheets you have created just to manage the daily work flow. Each spread sheet requires additional time to export, import and manipulate data.

• As your view gets closer ask if the software the single source in your organization or is the information collected from multiple sources. Note how many sources and how long it takes to gather and compile the information.

• At the up close and personal level, talk with each system user. They’re the experts and can tell you what works, what doesn’t, and what they wish the system would do. When the don’t works and wishes exceed the things that work it may be time for new software.

When to Buy New Software Example

So, what do you do with all of this information? Let’s look at a fictitious example for Acme Brick. Here’s how their inventory control ran amok in this case review.

• Acme fills 465 orders/year

• Average order is $14,000

• 50% of the orders are backordered

• 85% of the backorders are canceled by the customer

• 197 orders canceled each year

Value Proposition

For Acme Brick in just this one example the Cost to Do Nothing is significant. Let’s look at the value proposition:

• $2.7 million in canceled orders annually

• Software solution including customizations, installation, training – $300,000

Return on Investment (ROI) in less than 2 months

• First year savings $2.4 million plus $2.7 million for each year thereafter

Alright, that’s an extreme example and Wyle E. Coyote is simply an idiot for letting this type of debacle go on for more than a nanosecond. The point is that just about every business can discover new methods of saving money and time by looking at the Cost to Do Nothing.

Needs Analysis

Right after the Cost to Do Nothing review, the next step is a Needs Analysis. Great! More work. There’s another option here. How about using the Wikiapproach to determine the Cost to Do Nothing and get a Needs Analysis in the bargain?

By now you are probably familiar with the Wiki concept – get other people to do the lion’s share of the work. Most software dealers want to performNeeds Analysis on your business before they recommend software and present a proposal. If they are really worth their salt, they’re going to charge for this analysis because they are delivering a thoughtful, detailed report. The price can range from a nominal fee to a significant charge and everywhere in between.

The point here is that you can get other people to do the work, learn amazing things about how your work flows, and clearly answer the new software question.

Learn how you can be the best wingman with our free How to be a Wingman guide!

when to buy new software

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

when to buy new software

Share this:

, , ,

0 Responses to When to Buy New Software

  1. Maarten-Jan Waasdorp November 14, 2013 at 7:05 pm #

    Hi Jim,

    Thank you for writing this article. Too many companies make this choice (or not) based on all the wrong reasons. I agree with your summary of indicators for changing your system: double entry, bottle neck, accurate and timely info, usability of the system etc.

    Having an analytical mind, I can’t help making some comments on your example:
    You assume that all back orders are canceled due to the fact that the inventory is out of stock at the moment of purchase, ignoring all other reasons why a client would cancel. Also if back orders were the only complaint, there might be other solutions such as down payments or simple good old customer service aka setting expectations.

    The last assumption you make is that when they invest in a new system, they will close all those deals and get an extremely fast (and too optimistic?) ROI, as, again, they are ignoring all other reasons for cancelation.

    Now, I have enough marketing skills and experience to realize why you come up with this example, so from that POV I am totally fine with it.

    The main reason why I am pointing this out, is that I do see companies make (wrong) decisions based on incomplete information, exactly because they do decide too quickly and have not thought it through well enough and base their call on just the most obvious data.

    In short: when you make a decision, be aware there is more info to digest than you realize.

    Thanks again for bringing up this topic!
    Maarten-Jan Waasdorp
    CFO/Finance & Operations Management Consultant

    Sorry for my late response, I just saw this article as MY Recruiting posted a link to it today.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

See Dates