BlogThe Hard vs. Soft Cost Savings of IT Automation

IT Economics - 1.1

When justifying IT investments, we often use the terms “hard cost” and “soft cost” savings to delineate between the savings on hard asset costs and the more difficult to realize “opportunity” cost savings. In the current economic climate, financial-oriented decision makers are less likely to accept soft cost savings in business cases.

IT personnel costs are a particularly gray area when considering hard and soft costs. For example, if you automate a manual IT task with software, the automation will likely save time. But what happens to that recovered time? Many financial justifications calculate monetary savings by multiplying an average hourly rate by the time saved. However, if the savings calculation doesn’t also recommend a realistic alternative use of the time saved, decision makers will see it as a soft cost savings, and they may be more likely to reject it.

To make these perceived soft cost savings more palatable, you might first consider a few questions:

  • Can the existing IT staff be reduced? In this case, the cost savings are hard. However, if reducing the current IT staff isn’t a desired outcome, this approach is risky.
  • Can future IT staff increases can be eliminated or deferred? Since the savings with this approach are in the future and therefore less certain, this can be a tough sell with some decision makers. Identifying specific future Full-Time Equivalents (FTEs), which have been requested but are now being deferred or excluded all together might help you get past this problem. However, if you do choose this approach, be aware that future requests for additional IT staff could be challenged.
  • Can the time saved be spent on other value-added tasks not currently being done? If so, be sure to identify these tasks specifically. Also, the current staff might not have the skills to perform the new tasks, so include training time and costs in the analysis.
  • Will the time savings translate into a happier work force and less employee turnover?  If none of the options above work for you, try this one. After all, the costs of hiring and training new IT employees can be quite high. Although this is the least tangible of the options, it can be very effective if employee morale is low and turnover is high.
  • Can the time savings be bundled with other benefits?  If time savings alone doesn’t make the case compelling enough, see if the solution provides other benefits, such as reduced downtime, improved response time, improved security, improved reporting, or compliance with regulations.

These questions should help you go a long way towards justifying soft cost savings.  You might also reach out to your industry peers and find out what’s worked for them.  

About the Author

Bob Mauro

Bob Mauro, IT Economist

As an IT Economist for ASG, Bob works as a client advocate by developing business cases, building financial models, and creating customized tools to help customers evaluate return on investment (ROI) and other financial considerations. He also offers a broad base of experience in accounting, finance, and business analysis.