Are Unconscious Biases Preventing Your Company from Making the Right Decisions?

November 12, 2014

unconscious biasEvery day people make decisions; some are very simple and therefore unconsciously made, and some involve a lengthy process of evaluating and comparing options before making a choice.  Whether making a simple decision or a complex one, we are not as rational as we tend to believe, and these decisions are often made based on emotions and influenced by our unconscious biases.  These biases influence our everyday actions and are, by nature, unnoticed by us.  They are shaped by our cultural norms and experiences and allow us to quickly filter information to make decisions.  This is where trusting your gut and gut reactions come from – however they can sometimes lead us to make the wrong decisions and misjudge situations. Accepting that your gut feelings may be wrong is very difficult to do, but is necessary to guard against common biases if you want to make the best decisions possible.

These unconscious biases are present in our daily routines but they also represent a significant business risk.    Commonly associated with situations and decisions involving people – such as during the hiring process or when forging new partnerships – they also affect decisions that involve making large investments, like purchasing new accounting ERP software.  These types of decisions are often influenced by emotions and biases – more so than most people tend to realize – and can negatively impact a business if not properly addressed. Examples of these biases are outlined below.

Hyperbolic Discounting

Hyperbolic discounting is the tendency for people to want an immediate pay-off rather than a large gain later on.  This can apply to business owners who would rather spend less money on an easy to implement software solution, than put an investment into a system that takes longer to implement but can provide them with benefits long into the future.  This is why it is so important for companies to begin evaluating sophisticated software solutions while their current system is able to manage their business processes and so the need is not as immediate. Focus should be given to a system that provides a high ROI over a longer period of time, even if the pay-off will not be as immediate.

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How to Determine Ball Park Cost Estimates for ERP Software

November 5, 2014

estimating-erp-costsInvesting in an ERP software system is an important event in your company’s history. Your company is growing and you have decided to eliminate the redundancies of outdated manual processes, to take advantage of the operational efficiencies inherent in ERP software. As you begin your software search, before evaluating different vendors, it is always good practice to establish a ‘ball park’ estimate to ensure that your expectations are aligned appropriately with the vendors that you are meeting with. To determine a rough estimate, you need to establish your software cost to services cost ratio. Have no fear, it is much simpler than it sounds, as many experts agree most firms will adhere to a 1:1 ratio. That is, a company should budget double the price of the software to account for the services needed to install and maintain an ERP system.

The first step involved in calculating a ‘ball park’ estimate is to estimate a software list price for the number of users that you need, then double that number in order to account for the software to services ratio. If the number you arrive at is one that you are uncomfortable with, it may be time to adjust your company’s expectations of an ERP system, or perhaps reconsider if you’re even ready for the investment. However, if this number is something that is reasonable and within consideration, you have passed the first barrier and are ready to answer 6 additional questions to gain a more accurate figure:

  1. How many users will you require?

If the number of users is relatively small (less than 5) you will often pay more for services. This is because many ERP platforms require a minimum number of users, which is often five or more.  Certain vendors may also sell user licenses in packs as opposed to single user licenses.

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