IT Expenditure - putting the cart before the horse

Why businesses spend huge amounts on ineffective IT investments.

by Glen Feechan


Another IT White Elephant!
It seems that almost every day we read in the newspapers about another hideously over budget IT project that doesn’t achieve its expected benefits. The ones we read about are usually major multi-million pound projects in the public sector, however this is only the tip of the iceberg.

Many more projects achieve similar results in the private sector, in organisations large and small. These may be anything from the purchase of a new off-the-shelf accounting package for an SME, or a large-scale fully-integrated ERP implementation across multiple sites and countries. These do not usually make the headlines due to the commercially sensitive nature of this information.

Does this mean that the technology is over-rated or that we cannot manage IT implementations or is there something fundamentally wrong with the approach?

Where are we going wrong?

“Computers make it easier to do a lot of things, but most of the things they make it easier to do don't need to be done.”
Andy Rooney, US news commentator (1919 - )

I wouldn’t go as far as the above comment, however there is an element of truth in it.

Typically the IT implementation is seen as the solution to the particular problem (or problems) being addressed, but this is rarely the case. Often the introduction of an IT “solution” can compound a problem as there is now less opportunity for the human intervention that previously stopped problems from becoming crises.

The problems usually lie in the business processes (both formal and informal), irrespective of whether these are carried out by computers or human beings. Automating these processes can simply have the effect of making the problems happen faster!

The obsession with IT as the solution to every major business issue is compounded by the marketing departments and sales people of software developers selling it as such. Until executives address the underlying processes first, we will continue to see streams of failed, expensive IT projects.

Addressing the real problem

To take a process approach to the problem, we need to understand (in some depth) the informal processes carried out every day by employees. These are not the processes that managers think they carry out, and are rarely as laid out in the ideal world of an ISO manual. We regularly find, when working with clients’ employees, that managers are unaware of a large percentage of the processes carried out in ensuring that the job gets done. This is not a criticism of the managers - the level of information overload that this would involve would render them ineffective.
Working with employees so that they can map out their processes in this level of detail and re-engineer them to resolve the perceived problems can have a radical effect with no IT expenditure.

Targeted IT Expenditure

So far I have probably given the impression that I have a “downer” on IT. This could not be further from the truth - the problem I have is with the way IT expenditure is usually approached, and the problems that this approach creates.

Having addressed the process issues, IT expenditure can then be used to facilitate the new process, targeting those areas that would benefit most and significantly multiplying the benefits of the process improvement exercise itself. This expenditure can often be in entirely different areas to those originally envisaged.

Conclusion

Organisations have benefited greatly from IT investments over recent decades and will continue to do so. However, the risks attached to these investments are significantly reduced (and the resulting benefits significantly magnified) if the underlying, informal processes are addressed first.

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AC/DC rock inside your Excel spreadsheet!

One of the most bizarre uses of Excel. An AC/DC rock video within the spreadsheet!

Watch the video below, or download the spreadsheet itself at http://www.acdcrocks.com/excel.




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Breaking Loan Payments Into Principal and Interest Components

By Stephen Nelson

Microsoft Excel can help you down a loan payment into its principal and interest components. Excel's IPMT function lets you calculate the interest component of a loan payment. And Excel's PPMT function lets you calculate the principal component of a payment.

Using the IPMT Function to Calculate Payment Interest

The IPMT function calculates the interest portion of a payment given its interest rate, the period, the term (or number of payments), present value (or loan balance), future value (or balloon payment), and, optionally, the type-of-annuity switch. If you set the type-ofannuity switch to 1, Excel assumes payments occur at the beginning of the period, following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the period following the ordinary annuity convention.

The function uses the following syntax:

IPMT (rate, period, nper, pv, fv, type)

For example, to calculate the period interest rate for the 54th payment on a 30-year, $150,000 mortgage charging 8% annual interest, you use the following formula:

=IPMT(.08/12,54,30*12,150000,0,0)

The function returns the value -957.51. Notice that to convert the 8% annual interest to a period interest, the formula divides the annual interest rate by 12. Notice, too, that to convert the 30-year term to a term in months, the formula multiplies 30 by 12. The function returns the interest payment amount as a negative value because it reflects a cash outflow you pay.

NOTE If you set the pv argument to -150000, you indicate that you're loaning money. In this case, the function returns 957.51, a positive value, showing that the interest payment amount is a positive cash inflow.

Using the PPMT Function to Calculate Payment Principal

The PPMT function calculates the principal portion of a payment given its interest rate, the period, the term (or number of payments), present value (or loan balance), future value (or balloon payment), and, optionally, the type-of-annuity switch. If you set the type-of-annuity switch to 1, Excel assumes payments occur at the beginning of the period, following the annuity due convention. If you set the annuity switch to 0 or you omit the argument, Excel assumes payments occur at the end of the period following the ordinary annuity convention. The function uses the following syntax:

PPMT (rate, period, nper, pv, fv, type)

For example, to calculate the period principal payment for the 54th payment on a 30-year, $150,000 mortgage charging 8% annual interest, you use the following formula:

=PPMT (.08/12,54,30*12,150000,0,0)

The function returns the value -143.13. Notice that to convert the 8% annual interest to a period interest, the formula divides the annual interest rate by 12. Notice, too, that to convert the 30-year term to a term in months, the formula multiplies 30 by 12. The function returns the principal payment amount as a negative value because it reflects a cash outflow you pay.

NOTE: If you set the pv argument to -150000, you indicate that you're actually loaning money. And in this case, the function returns 143.13, a positive value, showing that the principal payment amount is a positive cash inflow.

Stephen L. Nelson is a Bellevue, Washington CPA and the author of many bestselling books including the MBA's Guide to Microsoft Excel from which this article is adapted. Nelson also edits the popular information web sites forming an S corp online and the incorporating a business, the forming an LLC web sites.
Article Source: http://EzineArticles.com/?expert=Stephen_Nelsonhttp://EzineArticles.com/?Breaking-Loan-Payments-Into-Principal-and-Interest-Components&id=859513

Giving and receiving feedback

by Angela Robson of Nicholson Consultancy

In this article we are going to look at giving feedback, which (if used correctly) is a tool anybody can use, at any time, with no cost (other than time), that will make definite, long term improvements to the business. It can be used to correct behaviour or to praise good performance. But like any tool there is a right and wrong way to use it.

The RIGHT way:

1. Remember the reason for giving feedback is to correct an individuals behaviour - not to vent your emotion.
2. Describe the specific behaviours / results you have observed, and explain the impact on the business, the team and you.
3. Check your observations are correct
4. Are there any mitigating circumstances ( remember to actively listen)
5. Describe the behaviours / results you are looking for (be accurate and concise)
6. Together, search for a solution
7. Check the individual will do it (beware of “I’ll try”, which translates as, “I’m not going to do it”)
8. Thank them in advance
9. Give regular updates and stay focused on their behaviour / results.
   

The process for giving feedback on good performance is very similar:

1. Describe the specific behaviours / results you are praising
2. Explain how you feel about the results / behaviours
3. Look at how the outcome was achieved and how it can be applied in other situations
4. Thank them, and give further encouragement

For any feedback to be successful it needs to be specific, descriptive and factual, and delivered in a non-judgemental manner. You need to focus on the actual behaviours and results, not the individual. If necessary prepare beforehand and gather any information / evidence you need.
Be careful though, feedback will fail if you use any sort of:

• Personal criticism e.g. “you’re not good enough” or “you’re too sloppy at work” - it will
  make them defensive
• Assumptions about a person’s mental state e.g. “you’ve a bad attitude” or “you’re lazy” – this will make them both resentful and defensive
• Generalisations e.g. “you’re always late” or “you’re always missing your deadlines” - if you exaggerate, they won’t believe you
• Contaminated praise e.g. “that was quite good…for you” or “that report was very
  thorough...apart from the obvious mistake” - they won’t know if they are being
  praised or criticised
  

To be really effective at feedback you need to be able not only to give effective feedback, but also to receive it. It is important to seek out feedback (even asking for feedback on your feedback). This will help you to learn and progress and ultimately lead to an improvement in performance.
When receiving feedback remember:

1. To listen actively
2. Suspend judgement and let them finish
3. Repeat back the main points (this will show you have understood what has been said)
4. Ask for specifics
5. If necessary gather further information from other people
6. Decide what you want to do next

Remember that if you ask for feedback, then you need to accept what you hear and don’t begin to defend yourself. You need to understand that this is their observation. You don’t have to believe it, or act upon it, but you must listen to them openly. If you begin to defend your actions, others may stop telling you the truth.

We have included below our all time top ten tips for giving feedback.

Top 10 Feedback Tips

1. Consider the business reasons for giving feedback
2. Make it timely
3. Praise in public, criticise in private
4. Keep it simple
5. Put it in context
6. Focus on behaviour / results, not personality
7. Use objective information, not just your own opinion
8. Focus on the future
9. Listen to the other person’s point of view
10. Don’t overdo it!

Angela Robson is a Director of Nicholson Consultancy Limited, specialising in Business Strategy and Lean Thinking. Angela contributes to the e-zine, “Better Today”, with information for those who are interested in making improvements in their business. If you’re interested in Lean Manufacturing, visit Nicholson Consultancy’s blog, Manufacturing Times.

Where to go when the banks say ‘NO’

by Glen Feechan

Although there are signs that the banks are gradually starting to lend again, it is not at anything like the levels business has been used to. I am sure many of you will be very aware of the lack of finance available from the banks even with a profitable business. What these same banks have done to the economy might bring you down too and they can’t take the risk!

Against this backdrop, I thought it might be worth looking to see if we can come up with some ways of accessing funds between us, without the banks’ help.

I have suggested a few routes to look at below, but I am keen that anyone should add their own ideas to the comments on the blog post so that we can all use this as a resource.

One of the more obvious routes is financing fixed assets you already hold, for example the refinance of properties and/or equipment/vehicles. Although finance is still tighter in these areas than it was, you may well have better luck than approaching the banks.

Another option along the same lines is to fund your debtors through factoring or invoice discounting. Due to the current climate you may not be able to fund as high a percentage as previously but this could be a very useful option.

If you are based in the UK, at FC Procurement we work with good suppliers in both of these areas, if you wish to explore the options.

Equity funding may be an option for some, maybe through business angels for smaller companies. However although funds are likely to be available, investors are looking for bargains and know they can get them.

For smaller businesses, short term loans from friends and family may be an option but think carefully, as if things don’t work out as planned you may damage a lot more than your credit rating.

One of the more innovative ways of accessing funds we have come across has now been used by a number of our owner-managed (UK) clients. It is now possible, under certain circumstances, to access personal pension funds to invest in private companies. A number of clients have used this method to access money tied up in pension funds from previous employers or in personal pension plans to invest cash in their own business.

This essentially brings a new equity investor into the business, without having to find one, allowing the long-term growth of the business to accrue to the owner for his/her retirement. This route may not be for everyone and you will need to talk to an Independent Financial Advisor (IFA) to discuss whether it is the right route for you. If you want to know more, we work closely with an IFA with experience in this field and can introduce you. Just drop me an email (glen@feechan.co.uk) or call on 0845 6439693.

These are just a few ideas, but please add your own in the comments below. Together we can get through whatever is to come.