Dealing With Problems

Being in business means dealing with problems.

Problems are the whole point of most businesses. A customer has a problem. A company will fix your problem for a cost. It is your job as a business owner to figure out if how much you can fix the problem for. If it costs you less than someone is willing to pay, then you will make a profit. If someone pays less than what it costs you to fix the problem, then you will take a loss. You are giving away free work.

The same thing is true of any project that you start. Whether in your personal life, or your world of work. What is the problem? How much are people(or yourself) willing to pay to fix it? If you fix the problem for what people are willing to pay, will you have a profit or loss?

Examples of Calculating Project Profit

Let’s say you are going to implement a new way of submitting expense claims in your organization. Each expense claim takes 15 minutes to process right now. There are 2000 expense claims processed monthly. You are going to save 5 minutes from each expense claim. The project will take a year to implement (2 people working 1/2 time on the project.) And it will cost about the equivalent of a year’s salary to purchase and implement the project. Is it worth it to pursue the project?

Probably not.

If you save 5 minutes per expense claim time 2000 expense claims, over 12 months you will save 120,000 minutes. (2000 claims x 12 months x 5 minutes/ claim) That is 2000 hours. If you spend 2000 hours implementing the project (1000 hours per person times two people) and if you spend another equivalent of a year’s salary on purchasing software and other material, you won’t see any pay-off until after year 2. By then everything could have changed. You could have different expense claim needs or even a better solution that you want to implement.

Conclusion

In a project or a business, you are dealing with problems. But to be successful, your solutions must cost less than the customer will be paying to solve the problem.