As I write this, it's early January, and the catch phrase 'new year, new me' is being thrown around a lot.
As much as I would love to claim that this is the year that I will run a marathon, learn Spanish, and lay off the chocolate, I know that my resolve would break approximately fifteen minutes into my first training run. The one resolution that I have decided to make, is to be less of a scrooge with money, as I have realised that I don't actually benefit from this in the long run. I may save a few pennies here and there (although this too is debatable); but the time and energy I waste in the process is very rarely worth the hassle.
In some ways, this is a resolution that many businesses should also consider making. When investing in new technology, companies often focus too much attention on the cost of the new system. They fail to consider in any depth the money that the new technology will save the organisation - or the new business and income that it will generate. Surely a better way of gauging whether a project is worthwhile involves focussing on the silver lining of return on investment (ROI); rather than the inevitable grey cloud of initial costs?
There are several ways that ROI can be calculated. One simple method is to subtract the cost of an investment from the gain from the investment (to find the net benefit), and then divide the net benefit by the cost of the investment, before converting the answer to a percentage (e.g. £350-£300 = £50; £50/£300 x 100 = 16%). This formula is very flexible, and the gains/costs included in the calculation can vary depending on the person performing the calculation. For example, it is likely that a marketer would use different inputs to a financial analyst. This has obvious downsides, as the ROI can be manipulated to some extent to show what the person performing the calculation wants to show.
Naturally, evaluative ROI is easier to calculate than forecast ROI, as predicting all of the costs and benefits of a new system before the implementation has begun can be tricky. Nevertheless, the business analysis skills and consultancy services offered by your technology supplier can help identify these. Some examples of the types of benefit that should be included (and quantified) when calculating ROI are: decreases in time to perform repetitive tasks, increases in customers and customer satisfaction, improved employee performance, opportunities to redeploy employees on more productive tasks and fewer mistakes and customer complaints.
The usefulness of ROI as a performance measure has been recognised by third sector organisations, who use a version of ROI to show the monetary value of their project outcomes. This is called social returns on investment (SROI), and was developed from social accounting and cost-benefit analysis. The UK government is increasingly using SROI to help determine the amount of funding awarded to charitable organisations. For example, when the SROI of Fab Pad (a project designed to help young homeless people sustain new tenancies) was calculated, it was found that for every pound the Government invested in the project, £8.38 of social return was derived. This positive SROI came mainly from reductions in health care costs, welfare benefits expenditure, and costs of repeat homelessness. Unsurprisingly, Fab Pad were granted additional follow-on funding.
Given the fact that it often takes a while for a positive ROI to manifest itself, it is not surprising that businesses tend to focus on the cost of software rather than the predicted ROI. In fact, being able to demonstrate the positive ROI of a system within one to two years of its implementation is uncommon. Organisations would therefore benefit from taking a longer term view of their technology projects, and from investing in trusted, long-term relationships with their technology suppliers. Like me, putting off marathon training because I know that it will be hard to begin with, these businesses are missing out on the long term benefits of up-to-date systems - purely because they are focusing on short term costs above all else. So, maybe this year it is time for a more long term view: focusing on the ROI (as well as any other intangible benefits) of updating technology; rather than just the initial outlay costs.
As for me, it's time to invest in a good pair of running shoes…