Monday, February 1, 2010

The Right Way to Reduce Cost

When organizations are faced with the task of reducing their cost, very often, they instinctively think of the removal of personnel. While this may be the correct course to take (especially in extreme market conditions such as the present), generally a great deal of cost savings can be obtained from the removal of waste.

IT waste is unique in that it generally cannot be inventoried and stored for later sale like steel pipes or copper wire. If a developer sat on the bench for a day then the company just wasted a man-day and the equivalent dollar amount and there is no way that this expenditure can be recovered. Therefore, a great deal of care and effort should be expended towards ensuring that waste does not occur in the first place. The second source of waste is needless rework due to defects and misalignment with business requirements. This is particularly true for organizations that perform application development. So another great way to streamline costs would be to ensure products and services are created right the first time which then minimizes the cost of performing testing and rework.

I am reminded of my time consulting at a large mortgage bank. The application being updated and released monthly always had issues in production after each monthly release. Multiple efforts of QA and user acceptance testing had to be performed, in spite of which defects would find their way to the end user. The following highlights my strategy as a consultant to resolve this situation:

  • My first step was to create a system of metrics for measuring and analyzing defects so that we knew where we were and how changes were improving the performance or otherwise. After all if you can’t measure it, you can’t manage it.

  • Next, I ensured worked with QA to re-strategize their approach and to create new test plans and test case documents. This ensured that the application was tested thoroughly and defects were at least found and not missed and sent on to the customer.

  • At this stage, a great deal of pressure was taken of user acceptance testing and those personnel could be partially taken off testing and utilized elsewhere (which was a cost saving already). The defects found by QA were then analyzed for their root cause by development and this information was then utilized to ensure that the error did not occur again.

  • The result of all this was that development began to produce software that was relatively defect free and the pressure on QA was significantly reduced while UA only performed a cursory check of software to be released. A number of personnel were freed up to work on other tasks and customers began to see zero defects in production.

Therefore, a great deal of cost savings was achieved along with improvement in quality and increased customer satisfaction. The alternative, which would reduce headcount and therefore cost, would still leave the organization with the issues and inefficiencies it had before but with fewer people to solve them with. Clearly, the former is the better way to go.

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