Should ROI hold much weight?

9 02 2010

When working as a consultant I often get asked about ROI, and how best to calculate this. Now when working for previous companies, this had to be done (especially when in a pre-sales phase) and I can see clearly why. Like anything in business, if you can show something is worth doing from a money point of view, then it is likely to get done.  

But how much weight does ROI calculations actually hold? I have read a couple of blog posts about this in the past couple of days, some of which see ROI as a complete joke and pull no punches in saying so. Have a quick read of this article submitted by Alan Peiz-Sharpe (@CMSWatch on twitter) http://www.cmswatch.com/Trends/1798-ROI-Joke

Working as an analyst myself, and also as a technical guy, I can see Alan’s point, ROI calculations are very vague and often based on presumptions. But does this mean they are no good at all? I beg to differ.

Business Case                                                                       

Ok, I am not saying use a ROI in the traditional term. I see ROI as an illustrative tool when looking at smaller parts of a business case. So when investing in IT, make sure you draw up a good and detailed business case for the solution you are purchasing (lets use ECM here as this is more of a specialist field of my own). Building a business case is not easy, especially for ECM and don’t think that a couple of hours on line reading up on ECM is going to help you write a good business case. This is an area that I often help businesses with, and it is one where businesses should really look to outside help if they can.

Ok, so you have a good case for your business, one which looks at the business benefits of the system and technology available, one that looks at what is the best fit for your organisations (don’t get hung up on price at this stage).

Where to use ROI type calculations

I never use ROI calculations as an argument for anything, especially for something as large as a complete solution for an organisation. (Many of the problems with these are illustrated in Alan’s post – though typically these are user case presumptions, over optimistic calculations etc). So where do I use these types of ROI illustrations…Well I use them based on “cases”. 

So let’s look at what I mean by a case. Ok, let’s say you have all your content stored in paper, and unfortunately your storage area goes up in a nasty fire. What is the estimated cost to your business of this? Don’t try to actually put a value on this, but imagine if you had a good ECM system you know you don’t have this as a problem for you. So in this case, your real ROI would be whatever you would saved in this scenario, which is more than measurable money….Don’t like that one?

Ok, what about the cost in fines to your organisation if you are found to be “non-compliant” to government legislation – with a particular solution you would be compliant. Is the fine greater than the investment? Yes – so the system is therefore a good ROI in this case scenario.

You can keep on doing this, looking at smaller business scenarios within your business case for a particular IT solution (doesn’t have to be ECM) and carry out ROI type of illustrations. You can of course be tempted to actually place monetary values in your ROI scenario illustrations, but please, if you do this, be very cautious and make sure you get your “variables” as accurate as possible. Let’s look at a quick example…

An example is monitoring how long it takes an individual to locate a paper file. Now obviously this is going to be different each time that person searches for a file – sometimes it will be on their desk, or the desk adjacent to them, it may be filled correctly, or it may be miss-filed or worse still, missing. So, take an average of that person’s time spent looking for files over a couple of days. Then spend the same period of time monitoring a person using an ECM system to locate files. What’s the time saving? I would use Time as my ROI in this case and let others put a price on this. Why? Well though you can put a price on this time saving, does it actually equate to that money saving? You still pay that person the same wage do you not? So the only way to calculate a real saving is looking at efficiency gains in this case, and that can be tricky. Though in theory it is easy, what actually happens when that staff member has more time to do their work? Do they actually work harder and faster? Or do they only marginally increase the amount of work they complete – actually, do they get given anymore work because they are working more efficiently or do they still only receive the same amount of work to do… You can quickly see how ROI as a money calculation can come back to bite you later…

Conclusion…

Basing any investment, especially on IT based on an ROI calculation is asking for trouble. Instead look at a valid business case that may contain scenarios which will illustrate areas where investment return can be measured, not necessarily in hard cash. Within my blog you will find a number of posts on ECM savings, some of which do look at scenarios and cases where monetary values could be added, however, my aim is to make illustrations and put forward a business case, rather than a simply ROI calculation…

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True ECM savings…#1

20 05 2009

This is going to be something I will continually look at through my blog posts, so you could say this is post #1 in looking at the true savings ECM solutions can provide organisations.

In this first post, I want to look at what organisations consider to be their costs when:

  1. Filing a document
  2. Locating documents
  3. Waiting for documents due to others using them
  4. Locating misfiled documents
  5. Reproduction of lost documents if possible
  6. Paper Archive / storage
  7. Retention period management

It’s weird, as I have read many blogs recently that do actually place monetary values to these things. I find this great in illustrating a point, however each organisation is different and to get a real feel for what your organisation is spending here, you need to get a consultant in to review these issues.

So, quoting from an AIIM blog http://aiim.typepad.com/aiim_blog/2009/05/management-ecm-excuse-3-weve-got-to-pick-our-battles-.html we see that some typical values have been placed. So, $20 to file a document, $120 to find a misfiled document and $220 to reproduce a document. These are just some figures I have chosen to reference. Now some organisation will look at this and think “hey, that’s not too bad. An ECM solution investment is going to cost us mega bucks so our ROI is going to be over a large period of time….” Well you would be wrong….

First off, just how many times does your organisation have staff file a document in a day? How many times are documents searched for in a day by staff and just how long does that take? How much time is wasted waiting for a document from another staff member? How many times do you have staff looking for misfiled documents? How often do you actually reproduce documents? How much does it cost to store your physical paper? How much do you spend on managing retention periods and looking at compliance issues? Now put a price on these things per day and multiply by the number of working days in the year……hmmm you see these costs aren’t small.

But they aren’t the only costs. There are so many more. For example, just how much are you spending on physical paper? Filing cabinets themselves, stationary etc? There are also the costs that are even harder to measure, and which could be argued are far more important. These are costs or impacts on your actual business. The time it takes you to respond to the market, the time it takes you to deliver for your customers, the time it takes you to execute business processes, the time it takes you to deal with customer complaints or enquiries. All of these have costs associated with them, both in terms of monetary costs right now, and longer implication costs to your company in retaining customers and winning new ones.

All in all, when you start looking at ECM and looking at the costs, make sure you start to investigate in detail just what are your current operating costs. I think you may well be shocked….Of course there are companies out there, consultancies ready and willing to help you with these things, my own company offers such services. I would strongly advise getting all the information to hand before you start looking at ECM solutions, that way you know you can get a good feasibility study together and have an accurate ROI projection…..

Little plug here, if you need some help in looking at your day to day costs and benefits of ECM, why not mail the guys at One Degree… info@onedegree.co.uk