What is the True Cost Performance?|HENNGE Taiwan 部落格
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Cost performance is an indicator which shows the ability to deliver performance over a certain cost. It is easy for us to focus only on the ...
WhatistheTrueCostPerformance?
Jul8,2021
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Whatiscostperformance?
Oneofthemostfamouswordsusedinbusinessis"CostPerformance".Costperformanceisanindicatorwhichshowstheabilitytodeliverperformanceoveracertaincost.Sometimeswemightsaycostbenefit,costeffectivenessorpriceperformance.
Costperformanceisagoodindicatortoshowhowefficientlybusinessoperationsareoperated.Higherperformanceswithlesscostwillleadtomoreprofits.Forexample,ifyouaresellinghotdogs,itisobviousthatitwouldbecheapertobuyacertainamountofsausagepackagesatonceratherthangoingtothesupermarketandbuyingasausagepackageonebyone.Ofcourse,withbadpredictionsofthemarketdemand,theperformancemaybecomeworsebybuyingtoomanysausagepackages.Butingeneral,withdecentpredictionsofthemarketdemand,costperformancewillbebetterwithpurchasingtherightamountatonce.
Difficultyofevaluatingcostperformance
Inordertoevaluatetheperformanceoftwodifferentmethods,itiseasytojustcomparetheoutputs.However,intherealworld,ifthetaskisdoneinadifferentmethod,therewillbeadditionaleffectsforeachmethodotherthantheoutputitself.Therefore,evaluationofperformancemightbedifferentdependingonhowthepersonororganizationvaluesthings.
Forexample,let'ssayasalespersonwouldliketodeliverproductinformationtotheirleadcustomers.Thesalespersoncansendemailstoalloftheleadcustomersatonce,orthesalespersoncancalleachleadonebyone.Bothwayscanachievedeliveringinformationtoleadcustomers.Andifwecomparethecostofdeliveringinformationtoleadcustomers,sendingemailsatoncewillbecheapersinceittakeslesstimecomparedtocalling.Ifwelookatonlythisfact,sendingemailseemstohavebettercostperformance.However,sincetheadditionaleffectsbyeachmethodisdifferent,ifthesalespersonsendsoutalltheemailsatonce,thesalespersonmayknowwhoclickedtheemail,yetitisdifficulttoknowhowmuchtheleadcustomerisinterestedintheproduct.Ontheotherhand,ifthesalespersoncallstheleadcustomer,thesalespersoncanaskmorequestionstoknowhowmuchtheleadcustomerisinterestedintheproduct.
Whenwecomparecostperformance,sincenotonlycostbutalsoeffectsbyeachmethodwillbedifferent,itwillbeimportanttoevaluatetheprosandcons.Prosandconswillbedifferentdependingonthesituation.Ifthecompanyalreadyhasastrongbrandandawarenessoftheproduct,sendingemailsallatoncemightjustbegoodenough.Iftheproductisfairlynewandifthecompanywouldliketoknowhowpeoplethinkabouttheproduct,callingmightbethebetteroption.Inreality,manycompaniescombinedifferentmethodstoachievebetterperformance.
Pitfallofevaluatingcost
Itiseasyforustofocusonlyontheexpensefeeascost,sincepriceisalwaysanumberandcanbeeasilycalculated.However,costisnotonlyaboutthemoneyspent,butalsotheamountoftimeandhumanresourcesneededtobeinput.
Let'ssayyouwouldliketohaveasandwichforlunch.Youcanjustgotosomeshopstobuysandwiches.Or,youcangotothegrocerystoretobuyingredientsandmakesandwichesbyyourself.Buyingsandwichesmaycostmorebutitisfaster,anditdoesn'ttakealotofefforttobuyasandwich.Ontheotherhand,itmaycostlesstobuytheingredientstomakeasandwich,butittakesmoretimeandefforttodoso.
Inbusiness,everyemployeehasasalarythatcanbedividedbytime.Therefore,wecancalculatetheamountofmoneyspentoncompletingeachtaskbydividingthehumanresourcefeewiththeworkingtime.Therefore,thetotalcostofacertainprojectnotonlyincludestheactualhardwarefeeitself,butalsoincludestheamountoftimeandhumanresourcesthatneededtobeinput.
Thetrickypartaboutcalculatingthecostofhumanresourcesisthatforacompany,onceacompanyemploysaperson,therewillbeabasicsalarythatneedstobepaidconsistentlynomatterhowthepersonworks.Therefore,eventhoughthetimeandhumanresourcesneededtobeinputtoperformacertaintaskmightbeless,unlessthereareothertasksinwhichthosehumanresourcesareneeded,thecostperformancemightnotbeimproved.Ofcourse,therecanbeanemploymentcontractbasedonthetrueperformance.But,letmeignorethosecasesfornow.
Ingeneral,ifyoureplacemanualprocesseswithmoreautomatedprocesses,costperformanceshouldbeimproved.Thereasonissimple.Automatedprocessescanrun24hourswithoutanyresttimeaslongastheprocessdoesnotneedtobemaintained.Plus,inmanycountries,thereareregulationsthatacompanycannotaskemployeestoworkforreallylonghours.Butthereisnoregulationforrunningautomatedprocessesforalongtime.
BenefitofSaaS
It'sbeenquiteawhilesincetheSaaSbusinesswasintroducedtothemarket.Fromthebeginning,therewerealwaysdiscussionsonwhethercostperformanceofSaaSservicesaregoodornot.UsuallythebenefitsofSaaSaresaidtobethatausercompanydoesn'tneedtoownthephysicalservers,doesn'tneedmaintenance,andcanpurchaseonlythenecessarylicenses.Incontrast,thefeeoflicensesismoreexpensivecomparedtorunningsomesoftwaresonanexistingserver.SometimespeoplesaythatSaaSservicescannotbecustomizedsothatitwillnotfittotheirbusinessprocess.
Ibelievealloftheprosandconsstatedabovearetrue.Becausehowyouevaluatecostperformancedependsonhowyouvaluetheperformanceandhowyouthinkaboutthetotalcost.And,evaluationwillbedifferentbycompaniesdependingontheirbusinesssituation,theirbusinessenvironmentandtheirbusinessvalues.
However,IseeanewbenefitofusingSaaSservicesrecently.Today,therearesomanySaaSservicesonthemarket.ManySaaSservicestrytosolvecertainproblemswiththeirowndifferentapproaches.ForexamplelikeaToDomanagementservice,somemaymanageToDosinlistsandsomemaymanageintileway.Somemayhavetheirownappandsomemaybejustanadd-onapptosomeothermajorSaaSservices.
Thepointisthatyouwillneverknowwhichwaywillreallyfityourbusinessoperation.SinceitiseasytoswitchbetweendifferentSaaSserviceswithlittlecost,itispossibletotryoutmanydifferentwaystoimproveperformanceandchoosethesolutionwhichsuitsthebest.Althoughcustomizingmaysoundlikethebestwaytomatchthebusinessoperation,itisdifficulttotellbeforehandwhetheracustomizedsolutionreallymatchesthebusinessoperationwithoutusingit.Plus,customizationusuallywillcostmoreinexpense,timeandhumanresourceswhichmakesitdifficulttoreplacethesolutiononceitismade.
Regardingthefactthatthebusinessenvironmentischangingquicklyandneedstobemodifiedconstantly,Iamstartingtothinkthatfindingasolutionbestsuitsthecurrentsituationandswitchingtothebettersolutioninthecourseoftimemightbethebestwaytoachievethebestcostperformance.
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