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Cost analysis for record management
ARMA Records Management Quarterly, Oct 1998 by Dmytrenko, April
Cost analysis has become a decision making pre-step for businesses today. Especially since the bottom-line - that is, cost - really became the bottom line. Long gone are the good old days when "because" was justification enough. Smart decision makers demand cost analysis, and savvy professionals target the expectations of smart decision makers.
Research on cost analysis shows there is relatively little available on the topic. The frustrations of records and information managers trying to cost justify everything from temporary help to imaging systems, automated software, or complete file room conversions are apparent. Some people have the knack, while most have great difficulty, resulting in missed opportunities due to poor analysis and/ or justification. (Consider that there may be more to lose than support for a proposal if a cost analysis is done poorly.)
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How does one go about becoming skilled in cost analysis? Most of the people I know (including me) learned the hard way, and maybe the best way, by simply doing and redoing. My first cost analysis was performed to justify a new microfilm reader-printer, a number of years ago. I initiated my analysis during a time when budgets were being cut back and I knew I had one chance to make my request with my justification. As it was my first cost analysis, I invested a lot of time in not only performing the analysis, but also in compiling a cost justification document. I got approval for the reader-printer, but I gained even more by realizing the tremendous benefit of cost analysis.
Performing cost analysis today is much the same, but the RIM opportunities have expanded. To complicate matters, there is no one best way of performing a cost analysis. It depends on many factors, including those that have nothing to do with costing, such as the financial climate of your organization.
There now is a resource book available on the topic of cost analysis written for records and information management professionals using records management applications. Cost Analysis Concepts and Methods for Records Management Projects is an ARMA International publication written by William Saffady, and it is excellent.
A short section introduces the book's purpose and scope, and provides some basic information, such as definitions and financial relationships. Although only four pages, it prepares you for delving into the wonderful world of cost analysis.
Cost Analysis Concepts and Methods for Records Management Projects focuses on two aspects of cost analysis: categorizing costs and justifying costs. "Part One: Categorizing Records Management Costs" addresses different cost categories, and there are many. By understanding costs, information professionals become better skilled in analyzing, managing and controlling them. Each cost type is clearly defined and illustrated using records management examples. The illustrations are very good in making the information simple to understand. Part One also examines the role of cost categories in budget preparation, price determination, and cost-volume-profit analysis.
"Part Two: Justifying Records Management Costs" begins by defining cost justification as the economic evaluation of a proposed action to determine if it will result in economical benefits. The author presents three different approaches that may be applied in making this determination. In doing so he continues to use records management examples to explain concepts, methods, and their applicability. Each method is detailed in the information and examples, and the proper arithmetic formulas are outlined to determine cost effectiveness and return on investment.
The book's Appendix includes a glossary that is well done; the terms are defined in easy to understand language. The Appendix also lists additional publications that the reader may find helpful. As there is not much out there on cost analysis, most of these publications are general finance titles, but may be worth referencing for those interested in expanding their financial backgrounds.
Cost Analysis Concepts and Methods for Records Management Projects is a good resource book. William Saffady has provided a solid introduction to a topic that can be complicated and intimidating. His straight-forward approach makes this book easy to understand and follow. In addition, he has done a good job of incorporating a variety of illustrations, diagrams, and realistic records management examples to aid in communicating his information. (Note: The author does not offer this book as a resource for specific cost data, as these are subject to considerable situational variation.)
This book also prepares the reader to be able to talk skillfully in financial terms. You will be ready to let ROI (return on investment), CVP (cost-volume-profit analysis), C/M ratio (contribution margin) roll off your tongue with ease. If you understand cost analysis, can skillfully perform one, and can comfortably discuss it in financial terms, you will be well prepared. (Note:The author is working on a companion book that will focus on applications and problems.)
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