People usually think of systems in organizations as a cost to control. They do not think of them as an infrastructure that defines what you can do with your organization. The expense of a software subscription appears on your budget every year. The ongoing cost of inadequate systems in terms of wasted time, mistakes, compliance failures, and a limited ability to grow is far less tangible. But these costs usually far exceed any cost of a technology solution, and they are not easy to measure.
The cost of inadequate systems manifests in hundreds of small ways every day. Staff do a little less every day. Mistakes require a little more rework. Reporting fails to provide insights that could be acted upon to effect improvement. Each of these costs seems little in isolation. In aggregate, they create a strong current against you.
The Tax on Time
Inadequate systems tax staff’s time. Every task takes longer than it should. There is a constant need to gather the information necessary to do something from different places when it should be available in one place. Tasks that should be automated have to be done manually. People find workarounds for the system’s shortcomings, so everyone does it just a bit differently, and that causes errors.
Calculate how much time inadequate systems cost your staff. Time is an underrated cost in organizations, but it is more expensive than we think. If you have five staff members and each spends an extra hour dealing with the ineffectiveness of your systems, and that’s probably a conservative estimate, that’s an extra five hours per person per day. That’s 25 hours a day. That’s over 1200 hours in a year. Even at the most basic labor costs, that could amount to a minimum of $50,000 – $75,000 a year.
The cost only increases if you scale your organization up. An organization that doubles its intake of students or clients does not only need systems that are double the capacity of their current systems. It needs systems that can cope with the added complexity of coordinating and managing a greater number of relationships with students or clients.
The Cost of Mistakes
Inadequate systems permit the kinds of errors that good systems prevent. Manual data capturing leads to mistakes. One system works against another and makes data unsynchronized. Systems fail to validate incomplete data and identify mistakes; they allow mistakes to cascade through the system until data becomes useless. Each mistake also costs time to identify, rectify, and validate.
Some mistakes have costs that go beyond what it takes to fix them. Compliance failures can lead to fines and registration issues that require time to resolve. Billing mistakes can lead to cash flow challenges and can impact relations with clients if not resolved quickly. Documentation mistakes require time to resolve when it comes to essential processes.
Organizations can spend the lion’s share of their administrative capacity trying to fix things that should not have been broken in the first place. They should be trying to improve what they do or finding ways to increase their capacity for take-on work. Instead, they must spend all their time putting out fires.
The Cost of Compliance
Inadequate systems expose organizations to compliance failures. If the appropriate documentation does not get generated as part of workflow, it needs to be done manually whenever someone thinks of doing it. When a piece of information resides in one part of the system, and the information it is related to lives somewhere else, pulling the necessary information for compliance can be an organizational battle. If compliance to processes is not built into the system, it can lead to inconsistencies when auditors come calling.
Compliance failures cost organizations directly in fines or registration issues or remediation steps that need to be taken when they get caught out. They also cost money indirectly when organization spends time resolving issues and paying consultants to help them with compliance. Even reputational damage impacts your ability to enroll students or onboard your clients.
Training organizations in Australia’s regulated VET sector feel this pinch as they try and manage the data management and regulatory reporting requirements related to their students. Systems designed for this unique compliance ecosystem such as Cloud Assess can address this challenge more effectively and contain these costs rather than generic systems.
The Cost of Growth
Inadequate systems thwart organizations’ ability to grow. They are not built for a scalable organization. The organization can take on only a limited amount of work. Scaling the organization up means scaling up the number of staff and reducing the profit margin because the systems are inefficient at handling the workload they impose on the organization. Growth becomes impossible because the organizations’ operational infrastructure cannot accommodate growth.
This limitation comes with obvious costs. Your earning potential is limited by your capacity to grow rather than by the demand for your products or services. You watch your competitors grow while your organization stagnates.
The Cost of Turnover
Inadequate systems lead to staff turnover, and that has costs associated with hiring, losing institutional knowledge, and time lost in training. People lose motivation fighting systems that do not work for them daily. They feel incompetent when systems make even basic tasks challenging. They get burnt out trying to keep up with workloads that a well-designed system would prevent from getting out of hand in the first place. Good staff will leave organizations that do not invest in an effective operational infrastructure.
Hiring replacement staff members comes with costs too. There is time and money involved in recruiting staff members. There is the cost of training staff members, and in that time, staff members lose productivity.
There is also a reputational cost for your organization as turnover erodes knowledge within the organization and damages relations between staff and students or clients.
The Cost of Bad Decisions
An organization with inadequate systems does not have usable information to make decisions regarding how best to allocate resources or grow the organization. Reporting does not yield usable insights because the systems do not allow for it unless someone spends considerable time each time someone wants information.
When staff use spreadsheets with not enough data in them instead of the proper reporting systems, insights remain hidden from people who need to act on them because all they have is a dysfunctional hodgepodge of information that has not been processed.
This poverty of information also has costs. Decisions are made based on assumptions and gut feel rather than actual evidence from the information management system. Resources get allocated to areas where they are not needed, and problems that should be addressed get no attention.
An organization that recognizes these cost elements might believe that investing in good systems will pay for itself within months due to the efficiencies they gain through their infrastructural decisions.
Ask yourself whether you can afford not to invest in the right systems?
Your hidden costs probably dwarf any visible costs at amounts that make the investment a no-brainer once you have the complete picture. You will never again see systems as just another expense to manage.
