Business owners need to reduce and control costs at every opportunity. However, managing results is equally important. The ongoing challenge to increase sales and operating revenues often requires increased expenditures rather than simply cutting expenses. A delicate balance between costs and results means that financial managers should take cost effectiveness into consideration whenever possible. Management decisions involving business analytics provide a useful example for integrating the concept of “cost effective” into the assessment of a company’s growth and profitability.
Cost Effectiveness for Business Analytics and Business Intelligence
Tom Peters once expressed his strong opinion about the need for a growth-oriented company to spend more money instead of cutting expenses by downsizing. In his words, “No company ever downsized their way to greatness.” How does this wisdom apply to cost-effective business analytics?
For any organization that is not currently using business analytics at all, a common financial objection is that they “can’t afford any new costs for business management services.” If the discussion goes no further, the company will fail to take into account whatever benefits might accrue with business analytics. For example, what if a new business expense of $100,000 produces cost savings of $300,000?
With a cost effectiveness perspective, the consequences of not doing something should always receive equal emphasis along with the proposed expenditure. In a competitive business environment, a company must keep a prudent eye on what competitors are doing. Business analytics such as data mining accomplish this particular mission better than most other practical alternatives. If a business enterprise is competing with one or more companies that are actively employing business analytics, this adds another competitive dimension. What is the expected outcome if all or most of your competitors are using business analytics to improve their logistics and manufacturing operations while your company continues to do things the “old-fashioned way?”
Improving the Bottom Line with Cost-effective Business Decisions
The theoretical approaches of business analytics have been with us since the 19th century. However, the rapid advances in computer technology during the past 50 years have provided the practical means of making constant advances in how data is managed and analyzed. Data warehouses and enterprise resource planning methods are among new decision-making systems that have literally changed everything for most businesses.
The statistical and quantitative tools available with business analytics are designed to facilitate faster and better management decisions. Companies such as Capital One have used data analysis to reduce credit risk. In a three-year period, Deere and Company saved $1 billion by optimizing their inventory procedures.
However, successful results using business analytics are far from guaranteed. This is particularly true with mid-size and small businesses that do not have the same financial and staffing resources as companies like Capital One. While the biggest businesses can afford to do it all themselves, smaller enterprises should look for a prudent and cost-effective method to reduce the scale of this undertaking to a more manageable size. Business analytics can be cost-effectively outsourced to expert providers. However, it should not be surprising to learn that some business analytics outsourcing services are more cost-effective than others.
– Research Optimus