I hope that you have enjoyed the article “Cost Savings Reports: Why Some Are Weak.”
There is one point I really wanted to expand on in the article – Problem #2, Using Poor Quantity Estimates.
I know that many purchasers out there will say “I got the quantity estimates from my internal customer. So it’s not my fault if they overestimated and we don’t realize the amount of savings we expected to realize!”
If you are reporting cost savings estimates, you are (and should be) held accountable for the accuracy of those estimates. Don’t try to pass the buck. Executives don’t care to hear about other people’s roles in why you didn’t do a good job. Haven’t you watched The Apprentice?!?!?!
So, when given a quantity estimate by an internal customer, ask some questions, such as:
1. How “set in stone” are these quantity estimates?
2. What are the assumptions that were made in developing the quantity estimates?
3. What are all of the circumstances that could arise that could change the quantity estimates?
4. What are the likelihoods of each of those circumstances changing (high, medium, low)?
5. Instead of reporting a single number for our quantity estimates, if we had to report a extremely certain quantity range, what would the range be?
Sometimes, it may be safer to report that you’ll achieve cost savings of between $250,000 and $600,000 than to report that you’ll save $500,000.