Hello and welcome to the ALC School of IT Service Wizardry and this specific module, The Dark Arts of Financial Management.
Today we are going to describe how to create a productivity potion.
Five special ingredients are needed to create this potion.
- Previous year’s budget
- Price change information
- Business volume growth
- New services
- Forecast spend for next budget
Calculate the effect of price inflation on the previous year’s budget. This is done by calculating the uplift that changed prices have on the previous year’s budget. Increased prices mean more money is required to deliver the same output.
In a similar fashion calculate the effect of business volume growth on the previous year’s budget. After all if you are selling more products you need more finance to deliver increased output.
Then calculate the increased operational spend approved as part of the justification for each new or improved service delivered through the year.
Now add each of these results together and this indicates the amount of increased spend required to deliver services in the next budget year. This gives you the required spend without productivity.
Independent to the above activities, calculate the amount of money that you believe is necessary to deliver the services as agreed. This gives you the required spend including roductivity.
Report the difference between the two numbers as your productivity gain.
|Previous year’s budget
|Price change increase assuming 4% inflation
|Business volume growth of 10%
|New Services increased operational cost
|Forecast spend for next budget
|Required spend without productivity
|Productivity savings (67,000 – 60,000)
|Productivity as a percentage (7,000/67,000)
In this worked example a productivity improvement of 10.44% cam be claimed even though the annual spend has increased from 50,000 to 60,000 wizard tokens.