The misinterpretation of the large number

The harmonization of needed work resources has led to extensive saving sources. Scalable IT with its centralized data centers, cloud-based software, and all kind of end devices has evaporated corporate boundaries. At the same time, new forms of organization have been established – for example, Extended enterprise, Virtual organization, Joint ventures, and Platform economies. As a consequence, the number of participants is growing continuously. The expenses per member are getting smaller and smaller. Yet, total costs are rising due to a large number of participants.

With an increasing number of players, the total costs also rise. The responsible decision-makers must be aware that the visible expenses are offset by hidden expenses and unintended consequences that must be considered when making decisions.

  • Visible costs
    Even when evaluating internal efforts, decision-makers focus solely on the costs incurred. For example, if the price of emailing gets distributed to users without adjusting it from time to time. Although, according to Moore’sLaw, performance increases and costs drop dramatically every 18 months. Another example is an overall search engine that becomes discontinued because the departments do not accept the charges. Although there are only low costs per user, multiplication by the number of users results in very high costs. In the business case, only the visible costs are extrapolated – the invisible ones are neither seen nor determined nor considered in the business case.
  • Invisible costs
    Looking at the visible costs only fills one scale of the calculation. On the other scale, the collateral costs have to be considered. With a capped mailbox size, the email system requires less storage space and fewer administrators. However, on the other side, users are forced to manage their email. 1) Empty the mailbox regularly and back it up in a personal drive. 2) The search time for important correspondences saved a long time ago increases. 3) Personal storage space, local or network, is increasing. 4) Personal storage, in the worst scenario, is not backed up, meaning that if a disk crashes, those important documents are gone. The cost of an unlimited email box is disproportionate to the decentralized management costs that are not documented.
    We are in the information age. Unlike tangible goods, the value of information increases with use. Search engines are capable of finding just about any data, structured or unstructured. However, operating a search engine requires resources. To search the available information internally, they need a search engine – and, of course, barrier-free access to all data (except the 5-10% confidential data).
    In the business case, the responsible decision-makers would have to compare the costs with the losses caused by the invisible costs.
  • Unintended consequences
    The increasing responsibility of managers leads to a human avoidance of risks. All employees are indeed supposed to behave like entrepreneurs in the company. However, not even the so-called leaders manage to fulfill. As long as a mistake is punished, it is understandable not to take a risk for new things. The result is a company with little innovation, error-free but inactive employees, and, in the medium term, the end of a unit or even an entire company. The handling of digitalization is a current example. From politics to companies to employees, everyone is demanding consistent implementation of the available technical possibilities.
  • Nevertheless, we still have Internet-free zones in Germany or low bandwidth or outdated IT in companies. Anyone who is running a forty-year-old IT system nowadays with Cobol is effectively riding a dead horse. The unintended consequences of doing nothing are also not compared to the avoided costs. This eventually distorts the total costs.

Bottom line: High expenditures arise, especially in scalable areas through the multiplication of the individual costs. This creates cost advantages that trigger considerable additional costs. The wrong interpretation of large numbers is particularly clumsy. The potentiated costs per user must be compared with the multiplied invisible costs and unintended follow-up expenses. Otherwise, the business case is wrong.