Digital transformation has prompted companies around the world to rethink and modernize their business processes. However, alongside the benefits of digitalization come financial risks.
In this blog post, I explain how important cost control is in every digitalization project—true to the motto: Trust only yourself!
Because if you do not, you risk not only an empty wallet, but in the worst case, bankruptcy.
So, when would your project wallet be empty if you do not calculate properly?
The temptation of technology
The world of technology offers an almost endless range of solutions that can help companies optimize their processes and increase efficiency. But every new tool, every piece of software, and every platform also comes with costs—whether in the form of licenses, implementation costs, or ongoing fees.
Companies entering the exciting terrain of digitalization may easily lose sight of cost control in their euphoria about the possibilities. After all, they trust the software provider, who seemingly has a lot of experience and will surely present the costs transparently. But is that really true?
The importance of cost control
Cost control is more than just an accounting process. It is protection against financial bottlenecks, the preservation of profitability, and ensuring that technology investments actually deliver added value for the company.
An uncontrolled rise in technology costs can harm a company’s health and even lead to project cancellations—or, in the worst case, insolvency.
In the beginning, there was the tender
Simply controlling the contractually agreed costs merely means controlling the “evil” that was agreed.
However, anyone who has formulated their requirements vaguely, has no cost structure, and has no idea what costs and ancillary costs will arise later has a real problem.
Squeezing out the last “drop of blood” in negotiations can be really expensive
The bigger the customer, the more likely a buyer is sent in to negotiate a “good deal”. Sometimes, in their euphoria—and the possibly associated bonus—they go a bit too far. And then it becomes expensive instead of cheap.
If your provider looks like this after the negotiation, it means: Watch out.
Bet he will claw back the beaten-down costs two or three times over?
Here are some very popular ways to extract more money from you than was negotiated:
Issue: Time tracking
How long did the provider take? Especially for activities that do not take place on site, it is purely a matter of trust, right? It does not have to be, because you can also record times daily—either with start and end times or as a total time. There are great digital systems for this, which, surprisingly, are not used by all software providers. Why is that?
On your premises, you could also very politely ask the software provider’s employees to clock in like everyone else.
Issue: Accuracy of time tracking
How is it recorded? To the minute, in 5-minute increments, in quarter-hour or half-hour blocks, or even every started hour?
You can do the math yourself on the possible impact if the provider records times a bit “less accurately”. The question you should ask yourself is: why, exactly?
It should at least be in 5-minute increments. Anything beyond that has the potential to skim unnecessary money—true to the motto “over 250 days, 10 minutes too much every day is no longer peanuts” (just do the math yourself—unless you work at Deutsche Bank).
Issue: Reinventing the wheel again and again
If the software provider boasts about its hundreds of implementations during the sales phase, you should ask why preparing a kickoff meeting takes hours, all reports are created individually, checklists are reinvented, project plans are developed from scratch, or forms have to be created completely individually.
Anyone who pays in full for such “busywork” by the software provider has only themselves to blame.
Expect more finished and pre-prepared documents, information, etc.—because they do exist!
Issue: No tracking and budget monitoring at detailed cost level
Anyone who simply commissions 100 days of implementation should ask how they intend to monitor a budget at all. Because, for example, an ERP project consists of training, development, data migration, consulting, testing, acceptance, and quite a bit more.
How on earth are you supposed to notice that data migration has already eaten up 50% of the costs and the rest can no longer be implemented as planned? Exactly: NOT AT ALL!
If you have no cost projections in projects, you might as well go to a fortune teller.
The cost forecasts will be about as accurate!
Issue: No cost projection
If you have already used 50% of the budget, but the feeling creeps in that you have only completed 10% of the work, then you have a problem.
Unfortunately, there are hardly any software providers who can do this well or support it in their own systems.
It gets especially funny when the provider says “we work agile, so that’s not possible”. True to the motto “it costs what it costs”.
Would you handle your private money like that—for example, if you were building a house? Seriously—was your answer just yes or no?
Issue: Ancillary costs
Have you calculated in your budget how many trips, overnight stays, per diem allowances, etc. are planned for the entire project? No? Oops—then prepare for an interesting cost surprise.
Anyone who now comes up with the excuse “we do everything remotely”, does not understand that projects like this are carried out by people who should not only receive instructions from afar, but with whom you should also interact in person—unless you like treating them like “machines”, in which case that fits, of course.
By the way, the “remote” card is often played as an excuse when both sides have neglected this budget, to pretend it was always planned that way anyway.
Issue: Unclear allocation of services and a flood of invoices
Have you ever seen an invoice where it was not at all clear where it fits into the budget? Welcome to the club. That is why you should absolutely ask to see sample invoices in advance, so you can flag this early.
The billing interval also plays a role—anything from daily to weekly or even monthly is possible. And if the provider “forgets” something, then a bit later as well.
Whether it is sloppiness, incompetence, or intent, simply waving an invoice through just because you do not understand it yourself and do not want to look bad—or because you are still at the beginning of the project—is not a good decision.
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The piggy banks in many companies are empty. What happens then when costs overrun?
Conclusion
So, that should be enough for now to make it clear to you how important budget planning and the associated control are. And there are still about a dozen other levers you should consider if you do not want to be “surprised” by a massive cost overrun that will drag you as the person responsible—and certainly the project as well—into the abyss in the end.
To prevent that from happening, it is well worth considering bringing in external help—even in this context. It pays off in any case.
Simply arrange an initial free consultation. Here is the link: Click here to request an appointment via the link.
Always stay in control! Then digitalization becomes added value and not just a burden.
Image sources: Unsplash
