A broad brush stroke estimate of the cost of information in your organisation is easily made. Sum all the expenses that relate to tangible items – buildings, equipment, raw materials and so on, and add on financing costs (dividends, interest etc). Then subtract this from the total expenses for your organisation and the result approximates to the cost of information. If you work in a service industry this could well come out at around eighty per cent – or even more. Even for manufacturing companies the cost might be forty or fifty per cent – so it’s a substantial amount. Ultimately information costs are labor costs – people who are not handling materials are generally processing information.
This claim may not be immediately obvious, but a brief consideration of the situation will show that it is largely true. All those people whose daily work consists of filling in forms, writing emails, reading emails, preparing sales and marketing material, reading reports, attending meetings etc. etc. all have one thing in common – they are information workers processing information to keep the wheels of the organisation turning. While we compartmentalise them into sales, finance, HR and so on, the reality is that they are all information workers, but dealing with differing domains.
So what – you might think – it’s just a reclassification of a set of expenses. Well it is and it isn’t. Once we acknowledge that these are information costs the implications are far reaching. Think about social networking systems within the organisation. These are the latest fad at the time of writing, and it’s not really clear where the benefits are to be found. If the average worker spends just two per cent of their day telling others they are in a meeting, having a coffee, working on a report, on holiday – then the productivity of your organisation has just diminished by two per cent – and this is a very conservative estimate. Instead of creating more information (which always has a cost) they could actually be doing something instead of telling everyone what they are doing. The vendors of these systems will argue that better communication cuts down information search times – which is true. But is anyone measuring how much search times are reduced versus the cost of populating the social network – probably not, and so no one really knows.
While finance will probably have a handle on the cost of coffee vending machines, it is unlikely to have a handle on information costs, simply because no one is measuring. Of course there is a cost involved in the measuring too (this is more information), but when information costs account for three quarters of total costs it is likely that measurement will return significant benefits.
There are many systems used in large organisations that impose very high information costs. Enterprise Resource Planning (ERP) systems are perhaps the best example. It is quite common to hear employees complaining that filling in expense reports might take fifteen minutes before the ERP system was implemented and two hours after. This is a fairly serious information overhead and a substantial cost. It is doubtful however whether anyone measures whether the extra information overhead results in savings that exceed this cost. There are many other examples and central to them all is a lack of appreciation of information costs and how easily they are incurred.
The solution to this predicament is a reorientation in thinking, particularly in the finance department. Systems should only be implemented when it is clear that the additional information costs will result in larger savings. Unfortunately such a change of emphasis is unlikely and the net result will be greater information overheads with less than optimal returns.