Read business magazines and blogs for long enough and you’ll start to believe there are far more essential technologies out there than your brain and your organization’s budget can handle. Internet of Things, Big Data, machine learning…the list goes on and on. In order to separate over-hyped trends from initiatives that will actually help your customers, staff, and bottom line you need to take a step back and think more objectively.
One way to do so is to perform an ROI analysis. Before running the numbers, we need to first define what we’re talking about. Simply put, return on investment is a performance measure used to evaluate the efficiency of an investment. The benefit (or return) is divided by the cost of the investment to yield a percentage. High ROI mean the gains delivered by the investment compare favorably to its cost.
Doing a basic ROI calculation can help you answer two vital questions:
1) Is the investment worth the money?
2) Do the benefits and savings outweigh the cost? (And if so, how long will it take for your business to achieve these?)
Such analysis doesn’t just apply to your company’s investments. You can utilize it in your personal life as well. For example, let’s consider buying a new (or lightly used, for that matter) car. It’s unlikely that you just make a snap decision on the make and model you’re going to buy, stop at the first dealership or used car lot you come to, and sign the paperwork there and then. Instead, you probably read online reviews, ask friends and family, and maybe even geek out on horsepower, top speed, and more with a stack of car magazines.
Once you’ve narrowed down your search, you then consider purchasing options. Are you going to pay cash or finance your new car through the dealer or bank? How much is your trade-in worth on Kelly Blue Book or Edmunds? Should you buy or lease? Then there’s the condition of the car to consider. A new car will be covered by a longer warranty but depreciates in value the moment you drive it off the lot, while a used car might be better value up-front but could have more maintenance issues. You may also consider gas mileage, insurance premium, and how long you plan to keep the vehicle for. And this is all before you actually test drive it!
If you’re going to take such a thorough approach to a personal decision, shouldn’t you also be thoughtful about evaluating new technology for your business? After all, the choice won’t just impact you, but also how efficiently and effectively your team performs daily tasks and, quite possibly, how well you serve your customers. Also, do you like and trust the vendor to deliver what they promised and be a proactive long-term partner? These are examples of qualitative or soft measurements that you can take into account and combine with the hard quantitative numbers like ROI to make a solid decision.
To do so, you need to look beyond the face value of the solution you’re considering. If buying product A yields $50,000 in savings and product B delivers $100,000, which appears to be the better choice? Product B! But what if it costs $80,000 and Product A only costs $10,000? Then product A’s ROI is 400% ($50,000 - $10,000) / $10,000, while product B’s ROI is 25% ($100,000 - $80,000) / $80,000. Which is better now? Absolute savings/benefits value is meaningless without considering the total investment cost, which might not only include the sticker price but also the time it takes to deploy the product, change management, annual maintenance, and more.
While some technologies can make your organization money, most are likely to provide the benefit of cutting costs in some way. Take eForms, for example. A study conducted by AIIM found that the average cost of manually processing one form and then scanning it into an ECM system is $7.40. Considering that the typical business can have hundreds of forms for dozens of workflows (PTO requests, new employee onboarding and capital requests, to name just three), the costs of processing paper can add up fast. Say your organization handled 10,000 forms a year – that’s $74,000 right off the bat. Not to mention the additional costs involved with missing documents, redundant data entry, and all the other activities not included in that AIIM per-document number. Plus the time your employees waste pushing paper that they could be spending on applying their expertise to value-add tasks.
If you decided to implement an eForms management system, it would certainly eliminate these hard and soft costs. But that isn’t the end of the ROI story. Such a solution can also speed processing and approval times, automate routine daily tasks, and instantly integrate data into business systems. In the long run, these benefits can exceed the simple cost reduction of removing paper. It’s worth asking potential vendors to show you their ROI calculations and to back these up with customer references – because like with a car salesman, just because someone talks a good ROI game (What will it take to get you to buy this eForms system today?), doesn’t mean you should take their word for it.