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As a follow up from last week’s video, this week’s video is about how to move from being a “cost center” to becoming an “investment center.”
The reality is CFOs love to “cut costs,” but they love making profitable investments much more. Investments have a return-on-investment (ROI).
If you can’t understand why you aren’t getting the resources you need, it’s probably because you are perceived by others, and often even by yourself, as a cost center … and nobody likes costs.
Not sure how to calculate ROI? That’s exactly the type of thing we get much detailed on in the CAE Forum, but I’ll be sharing some of the basics in the next few weeks.
Stayed tuned, and put on your investment manager hat 🙂
Have a great rest of your week.
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Jason Mefford: Welcome to another episode of The chief audit executive briefing. Hey, welcome back. My friends, and this week I want to continue our discussion.
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Jason Mefford: About budgets and about getting the budget and resources that you need. Now, one of the first things is to think about how you’re viewed in the organization.
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Jason Mefford: Most administrative functions are considered cost centers. Okay, there are cost centers and there are investment centers. And unfortunately, most of the people.
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Jason Mefford: In your organization, consider you to be a cost center. In fact, many of you may also believe that you are a cost center. And we’re going to talk more about that here in just a minute.
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Jason Mefford: Now, what I can tell you is CFO Chief Financial officers. They love to cut costs and they like to make investments.
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Jason Mefford: So those of you that are complaining or, you know, worried that you’re not getting what you need.
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Jason Mefford: Or that any time the CFO decides they need to cut budget that they come back and cut your budget. That’s why they’re doing it.
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Jason Mefford: Even when they’re cost cutting. They are making investments in other parts of the business. So what that means is you have to go from being a cost center.
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Jason Mefford: To an investment center. And here’s the difference investments have a return on investment. It’s an ROI type of calculation. Okay, so first off, you need to see yourself.
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Jason Mefford: As an investment center, you have to change your mindset and start realizing that the money that you spend the money that you’ve been given in your budget.
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Jason Mefford: You need to account for as an investment and show a return on investment.
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Jason Mefford: Now I know a lot of a lot of you may be saying, but how do I do that. Well, I’m going to talk more about that later. And that’s really the kind of thing.
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Jason Mefford: That we go into in much more depth in the chief audit executive forum so if you’d like to get more information on that.
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Jason Mefford: You know, apply and join next time, because these are the kinds of things that we get into in much more detail in that group setting.
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Jason Mefford: Now in order to determine whether you are bringing a return on investment to your organization. That means you actually have to calculate it.
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Jason Mefford: So you have to start determining and tracking the value that you are really providing to the organization.
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Jason Mefford: So as an example, when you do an audit. If you find a way for maybe let’s say a process improvement. You need to go back and calculate
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Jason Mefford: How much of an impact did that audit actually have on your organization. And there’s some simple ways to do it.
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Jason Mefford: That I’ll get to in more detail later. And like I said, I’m going to actually prepare a more detailed little guide that will show you exactly how to do this.
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Jason Mefford: But you can look at things like, well, did we save time anywhere. Well, people in your organization, their time is worth something.
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Jason Mefford: And you can actually calculate how much you’re able to save or maybe increase productivity within your organization.
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Jason Mefford: You can also do some things like calculating cost avoidance. So, you know, one of the examples that I’ve shared sometimes camera if I’ve shared with you are on the podcast or where
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Jason Mefford: But, you know, one of the audits that we did. We knew that if the regulator came in and found the same results that we did, we would be given a fine of between one and $3 million
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Jason Mefford: So you know that project had a return on was a return on investment because we were able to avoid certain costs that could have come if the regulator was there.
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Jason Mefford: So there’s lots of different ways to do that. But I guess the point of today is, is just to remind you and get you to start thinking
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Jason Mefford: About instead of being a cost center becoming an investment center. Now let me share. I was actually talking with one of my friends this week about this exact topic. Okay.
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Jason Mefford: And he was he was sharing. He knows the CEO who, the first thing that the CEO does whenever anybody comes to him is he says no, right, somebody comes in and ask for $100,000 he says no.
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Jason Mefford: Show me the ROI. Show me the return on investment.
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Jason Mefford: And so this is this actually happened. Okay, there’s, there’s, there were these two groups that came in one that was in marketing and said we want to spend $100,000 on this particular marketing effort.
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Jason Mefford: The CEO said no. Show me the ROI. They went back they calculated. They looked at the numbers they determined what sort of a return they were going to get on this hundred thousand dollars.
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Jason Mefford: Went back to the CEO and he said yes, and gave them the hundred thousand dollars. The head of audit in that same organization came to the CEO wanted to spend $5,000 only $5,000 okay
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Jason Mefford: And the CEO said no. Show me the return on investment, the head of audit went away. Three years later, she came back with an ROI calculation.
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Jason Mefford: Three years later. Now if that person is complaining about, oh, I don’t have the budget. I don’t have the resources on a $5,000 spend
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Jason Mefford: Because they were too lazy to actually do the ROI calculation and determine what it is, then I’m sorry it’s can’t help you. Right.
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Jason Mefford: But what I’m, what I’m sharing with you is this. That should have been a very, very easy calculation to do and go back to the CEO within a week. In fact,
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Jason Mefford: They should have thought of that before. That’s why I’m telling you now. Right, so that when you come into the CEO and you say,
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Jason Mefford: I’d like to spend $5,000 i’d like to spend 10 2050 whatever the number is that you already have done your homework, you already know and you say, you know what I want to use $5,000 of the organization’s money.
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Jason Mefford: Because it’s going to save us $25,000 and here’s my calculation. If we get this tool. It’s going to save $25,000 in the next year.
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Jason Mefford: Well, I’m the CEO of a couple of companies. If somebody comes to me with a $5,000 idea that’s going to return $20,000 so I get. I get my 5000 back plus $20,000 within one year.
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Jason Mefford: I’m going to make that decision, all day, and so is your CEO and CFO. We just have to do the work and actually come up with and think of it that way.
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Jason Mefford: So again, if you’re if you’re if you’re feeling like a cost center and people are cutting costs and they’re cutting your budget.
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Jason Mefford: What you need to do is start thinking like an investment center, get that clear in your head. First off that. Everything you do should be an investment and have a return to your organization.
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Jason Mefford: And then knowing how to go through calculate that and show that is going to help because the next time that the CFO comes along and wants to cut costs if they see you as an investment center, you’re not going to be the first one that they’re going to try and cut
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Jason Mefford: That’s all I got this week, my friends. We’re going to continue this discussion further. So check in, make sure and be checking your emails for future episodes of the chief executive briefing. Have a great rest your week