Systems Thinking and ROI LO13649

Eric Opp (
Fri, 16 May 1997 14:17:52 -0400 (EDT)

Replying to LO13601 --

On Tue, 13 May 1997 wrote:

> But lately we have begun to get questions along the lines of, 'Well, this
> was certainly enjoyable but my manager will never buy this unless I can
> show some hard dollar returns. I have to show some tangible benefit.
> Have you got any examples where you can demonstrate that engaging in a
> systems thinking effort to examine a complex problem has resulted in clear
> dollar savings?'
> Any ideas on how to respond to this sort of challenge? Anyone got some
> concrete examples (that they can share at least anecdotally) about
> tangible savings from systems thinking?

and Ed Brenegar responded:

>Michael, On how to answer the "bottom-line" question, particularly when
>the charge is "show me the money,", I think of at least two responses.
>First, no one really functions on that level. Everyone performs tasks
>which have no demonstrable connection to a financial profit. If that was
>all that mattered, then they would act differently, I believe. Second,
>everyone defines that bottom-line differently, even when they use
>numbers. I'd be surprised if even all supervisors and managers accept
>projections for improvement uncritically.

I would strongly beg to differ with Ed **and** give an example. I
recently completed a class in the selling process at a local university
with a very forward thinking professor. The basis of the selling process
was **all** psychological and inter-personal. The class really opened my
eyes to 1) how much of the selling process really does derive from
inter-personal factors and 2) how well you have to understand "the system"
(i.e. the organization or the business as a whole) to understand how you
formulate your sales pitch. In the end, if you can't express the benefits
in terms of dollars and cents, you will not get to first base with any
manager. In that vein, let me offer a synopsis of the example case we

"You are a copier salesperson, who has been called on to visit a given
company, ABC Corp., to explore possible needs for copiers. In listening to
the prospect, you discover that the company has one photocopier, which is
being 'underutilized,' but seems to be causing some productivity problems.
The productivity problems are just a gut feel that the prospect has. You
discover that the company is dispersed in two buildings and on eight
separate floors (four in each building)."

Each semester, nearly the entire class misses the point, because
everyone wants to go in and "sell" the "features" of their given copier
model. The real point of the analysis comes from thinking about how the
copier is used or not as the case may be. Since there is only one copier,
the professionals and the admin staff must do a lot of walking back and
forth to be able to use the copier. When the costs in terms of lost labor
hours for all employees involved just for the time wasted walking back and
forth to the copying machine, you could have sold the company hundreds of
copiers and marked them up to your hearts content, because they were
throwing so much money out the window in lost labor hours. In the case we
analyzed, the company was losing $400,000 in burdened labor hours per
year, while a copier was a one time cost of $3,000! Now if that doesn't
smack you between the eyeballs as a manager, nothing will!

In terms of more generic problems, there will always be some quantity,
that you can associate a cost with - lost labor hours, cost of borrowed
money to cover inventory, lost sales due to lack of inventory etc. If you
have created a real systems model ala iThink, then each of the levels in
the model has the potential of having some kind of dollar amount
associated with it. Even the levels that are intangibles such as "level of
quality" or "good will" can be quantified. Any higher level manager, who
understands financial models, will look closely at your analysis even if
you could only make some intuitive stabs at cost factors for intangibles.
After all companies are often bought and sold for high prices based on
market good will and other intangibles. The real problem that you will
have to face is explaining the way your model works, because the systems
models contain effects that are often very counterintuitive, whose causes
and effects are separated by "large distances" in time and space. That is
difficult to grasp and implement in our very "linear" culture.

I hope this has helped! I do apologize for the length of the post.

Eric N. Opp


Eric Opp <>

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