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Estimating the Costs of No Decision – A Multi-Billion Dollar Problem?

By Hank Barnes | April 06, 2021 | 0 Comments

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“No decision” decisions continue to fascinate me.  As I posted last month, I don’t believe that most of these choices should come as a surprise to the vendors pursuing them.  The signs are often there.

But I thought it would be an interesting thought experiment to try to estimate the cost of no decisions, for both the buying organization and the seller.  Let me be up front about this.   These sunk costs are probably not  the  biggest thing to worry about.   If an organization starts down a buying path and does not buy, but learns something in the process to be better in the future, that is a good thing.  But that does not always seem to happen.

The bigger concern should be opportunity costs and confidence.

If an org has a high number of no decisions, the question they should be asking is where could we invest those resources more effectively.   Could we focus on less projects with a more focused and effective buying effort and get better results? I think the answer to this is undoubtedly yes–if the organization can recognize the issues in their buying approach (we have lots of evidence of what those are).

Confidence is another issue.  No decisions may feel like failures (if they aren’t made for good reasons).  In an earlier study, we discovered that as the number of no decisions in an organization increased, the likelihood of them having less regret over purchases they do make decreased, pretty significantly.  I discussed this in an earlier blog post as well.

But let’s look at my estimation, where I was trying to be conservative.   Without going into the gory details, I decided to estimate a loaded cost for the people involved.   I then used our past studies on the number of active and occasional buying team participants, the number of meetings that occur (with some time estimates), and the timing of when no decisions occur for both active and ad hoc buying efforts.  I also added in some time outside of meetings.   I then did some similar estimates for vendors, assuming 4 vendors invest effort in planned buying efforts that lead to no decisions and 3 vendors for ad hoc buying efforts).   I ran the numbers, then rounded down to be even more conservative.

Again, this is rough estimates, with some research backed guidance, to try to get some order of magnitude.   The results:

For a planned buying effort–one that had been budgeted or was part of a strategic plan–no decisions tend to happen later in the buying process. The estimated costs:

  • $70,000 – Buying Organization Costs
  • $100,000 – Cost to Vendors ($25K each)

For an ad hoc buying effort–on that arises over the course of doing business–no decisions typically happen earlier in the buying effort. The estimated costs:

  • $35,000 – Buying Organization Costs
  • $60,000 – Cost to Vendors ($20K each)

The numbers get more interesting when you start adding them up.  I used our latest buying study to look at the mean number of planned and ad hoc no decisions by company, breaking it down by our Enterprise Adoption Profile Segments.  Then looked at the total sunk costs associated with the no decisions for each.

For the buying organizations, the total costs spent on no decisions in 2020 ranged from roughly $450,000 to $1,200,000, depending on the ETA.  The overall mean cost was just over $800,000.

Source: Gartner, Inc.

For the vendors pursuing these opportunities, the accumulated costs were higher, ranging from roughly $690,000 to $1,800,000.

Source:: Gartner, Inc.

Finally, when you start to add all these up, for our study that included 1500 respondents, the total sunk costs for buyers were $1.125 billion dollars and $1.715 billion for vendors pursuing them.  And that is just for our 1500 respondents.

Let me reinforce, you can’t, and shouldn’t, eliminate all of these costs.   Sunk costs are just sunk costs.   But minimizing the true waste here can help both buyers and vendors. And there is waste.  I first started writing about no decisions over 6 years ago.   And the volume is increasing.  As a note, we saw a slight increase in no decisions in 2020.  Some of this could be attributed to COVID-19, but the increase was not a big jump compared to 2019.   Basically, organizations are investing more time in buying efforts and more no decisions happen.   The best buyers (FID, SCD, SIR) are more focused–and more likely to learn from every buying effort.   The others (ABD, ABM, ACR, FCM) still have work to do.  But that path is clear.

For buyers, there is a real need to improve the decision processes around buying.  Decision making best practices are well understood, but rarely applied.  The issues of bias and politics also come to play.  These are challenges, but not insurmountable ones.

For vendors, continuous, rigorous qualification (including working to understand the target organization’s ETA) and assessment of opportunities is needed.   In both cases, regular check points to make a continue/discontinue decision can help.

Ultimately, does this exercise in estimation reflect a multi-billion dollar problem or opportunity?   The answer lies in a commitment to be better on both sides of the table.

 

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