140 Understanding the Numbers
group and four in the latter with the following result: best-case cost to load onto
network approximately $13,000, and worst-case a bit, under $30,000 ($13,000×
3 +$30,000× 4 ≈$160,000). Dave reported that this result necessitated
adding a penalty clause to their standard contract to emphasize the importance
of the customer prework for the implementation team.
Denise thought there was time for a quick summary. She went to the
board and drew the following chart (see Exhibit 4.5). “As I see it there is a lot
of room for improvement. Granted, you will never reach the ideal cost of
$30,500, which is the total of the activity costs to capture and load a customer.
But the transparency you now have given these activities means that, as an or-
ganization, you should make steady progress down the experience curve. Next
time, let’s tackle transaction processing.”
TRANSACTION PROCESSING—MEETING 1
Since Carol was the hardware guru, she had taken the lead in this analysis.
Our transaction-processing system has three front-end N/ T systems that do the
order entry, transaction-processing, and fulfillment inventory management.
They sit on a UNIX backbone system that also runs the database. It made little
sense to go back and compile the costs for these systems over the past 12
months, since we were expanding them continually. What we did was take the
costs of the system for the last month and annualize it. The costs fall into two
groupings—people and system depreciation.
I have one systems manager and three shifts of two people—don’t forget,
we do provide service on a 365-by-24-by-7 basis. One person monitors the sys-
tem and troubleshoots any transaction-related problems, and the other handles
all hardware-related problems. Fully loaded, these seven people cost us approx-
imately $750,000 per year.
Ideally, we would have cost the N/ T systems independently of the UNIX
backbone. We didn’t have that fine a separation of costs in this area, how-
ever, and we ultimately grouped all of them together. Since the UNIX systemEXHIBIT 4.5 Customer-capture and customer-loading
cost summary.
Activity Average Cost Ideal Cost
Customer identification $ 87,500 [$875,000/10] $00, 730
Customer qualification 21,000 [$210,000/10] 175
Customer sale 41,000 [$410,000/10] 8,000
Business process review 3,600 [$ 25,000/7] 3,600
System design 5,000 [$ 35,000/7] 5,000
Implementation & certification 23,000 [$160,000/7] 13,000
Total (rounded) $181,000 $30,500