Monday, June 4, 2012

Hard or Soft?

I'm going to make this a fairly short post. At least, I think I am.

Hard or soft? I can think of lots of connotations for those two, but I won't go into all of them. What I am really worried about here is the distinction between hard costs and soft costs.

What's that? Let's consider an example of where the soft costs may outweigh the hard costs. But, first, let's define hard costs to be ones that go directly to the financial statements and soft costs to be ones that may affect the financial statements, but are far more difficult to quantify.

Most calculations deal with hard costs. They can usually be quantified fairly easily. Soft costs can't be handled that easily.

Suppose XYZ Company pays Really Big Strategy Firm (RBSF) to do a strategy study for them. RBSF decides that among other things, XYZ needs to cut their workforce by 15%. In their analysis, RBSF quantifies lots of things:

  • Payroll costs.
  • Benefits costs.
  • Real estate costs.
  • Infrastructure costs.
  • Overhead costs.
  • Many more.
However, RBSF neglects all these:
  • Damage in customer relationships.
  • Morale.
  • Continuity.
  • Brand damage.
  • Many more.
It's simple. The soft things matter. Don't forget them.

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