Savings Versus Cost Advantages

Savings are realized when there is some kind of cost advantage. A cost advantage reduces or eliminates expenditures. So we can say that a true savings reduces or eliminates various costs being incurred. In this installation, $131,870 was saved through a reduction in personnel, handling charges, and proof machine rental. After deducting processing charges of $90,990, the net savings fro the online system was $40,880. This is a savings that provides relief from current costs. It is realized specifically as a result of the additional processing costs incurred in the new system.

There are savings, however, that do not directly reduce existing costs. To illustrate, examine the following case:

A systems analyst designed an online teller system that requires 14 new terminals. No reduction in personnel is immediately planned. Renovation of the bank by and the teller cages will be required. The primary benefits are:

1. Savings in tellers' time to update accounts and post transactions. 

2.Faster access and retrieval of customer account balances.

3. Availability of, additional data for tellers when needed.

4. Reduction of transaction processing errors. 

5. Higher employee morale.

6.Capability to absorb 34 percent of additional transactions.

This is a case where no dollars can be realized as a result of the costs: Ted for the new installation. There might be potential savings if additional transactions help another department reduce its personnel. Similarly, management might set a value (in terms of savings) on the improved accuracy of teller activity, on quicker customer service, or on the psychological benefits from installing an online teller system. Given the profit motive, savings (or benefits) would ultimately be tied to cost reductions. Manage meant has the final say on how well the benefits can be cost-justified.