Proving the ROI of ECM to Your CFO Learn an easy method for calculating the ROI of an enterprise content management (ECM) investment and prove the value of working smarter and faster.
2 Proving the ROI of ECM to Your CFO Proving the value a technology brings to your business is important in any economy. In today s business environment, it is critical. Whether selecting or justifying a business software purchase, calculating return on investment to make your business case to the C-suite is no longer optional. From your smart phone to the most sophisticated business software, all technology is designed to add efficiencies and improve our lives. In the 1990s, businesses adopted new technologies rapidly, often without taking a hard look at the benefits. After tough lessons learned, many organizations now require an analysis of the costs and benefits of any proposed technology expense. While executives want to see proof of ROI, many executives and project managers do not believe their teams have the tools, training or time to calculate ROI effectively. Fortunately, with the right approach, calculating ROI to prove your business case can be done relatively quickly and simply. As the following Perceptive Software customer stories illustrate, calculating ROI can help you select the right solution, or justify an expansion. The process can begin prior to purchase or after implementation, and it can be streamlined to meet the time and resources available to your organization. We focused on the tip of the iceberg, the savings we could clearly see and realize. That made it easy for us to feel extremely confident in our recommendation, and to exceed expectations upon implementation. Ben Adams Bentall Kennedy
Selecting the Right Solution: Bentall Kennedy LP Planning Before Purchase While many organizations set out to calculate Ben Adams, Bentall Kennedy s Business the return on an existing technology Innovations Manager, understood that investment, Bentall Kennedy began with automating this cumbersome AP process the end in mind. The company started with would likely create a tremendous return on detailed process and ROI requirements, then investment. His team knew exactly what they looked for a software solution that fit the bill. wanted to accomplish, so they set out to find Bentall Kennedy LP is Canada s leading real estate advisory and service organization. The company services major institutional and private investors, supplying a range of asset management, property management, leasing and development services to more than 400 clients, representing more than $23 billion in real estate investments. a software solution that would deliver. We needed to justify automating our accounts payable process from a governance standpoint, Adams said. We set out to show our metrics and prove that we were making a good decision. We wanted high visibility and transparency into the rationale behind this investment. One of Canada s top 50 employers, the With those goals in mind, Bentall Kennedy accounts payable team at Bentall Kennedy took a no-nonsense approach to calculating manages 9,000 vendors and receives 1,000 ROI. By defining their process and calculating invoices each day. This large volume of anticipated ROI prior to purchase, Bentall invoices, traveling across 50 offices across Kennedy was able to narrow the many software Canada, was a burden. solutions available down to a final four, then easily make the final selection. They started with a Request for Quotation 3 KEY TERMINOLOGY Return on Investment (ROI):A measure of a project s expected return in percentage terms. ROI is calculated by dividing net benefits (benefits minus costs) by costs. Payback Period: The breakeven point for an investment. The point at which the solution has brought value that is equal to its cost. Total Cost of Ownership (TCO): The total lifetime cost of acquiring, operating and upgrading software. There is often a significant difference between the initial price and its long-term cost. (RFQ), which was based on a 30-page requirements document. They planned the process in detail ahead of time, then evaluated the four top solutions to determine which best met their needs. The RFQ provided vendors a detailed view of the Bentall Kennedy team s requirements. They wanted a solution to automate vendor management, invoice processing and payment processing. Analyzing the RFQ responses, they were able to quickly see that certain products couldn t do certain things. The RFQ helped us narrow our choices to Proving the ROI of ECM to Your CFO four solutions two ECM solutions, and two point solutions, Adams said. Point solutions weren t able to meet all our needs, but they were less costly. Enterprise content management solutions could do it all, but some wanted us to pay for much more than we needed. To help us analyze this, we created a grid on core functionality, then rated ROI and functionality benefits.
4 Clear and Simple Savings In rating return on investment, Bentall Kennedy calculated only the hard dollars saved. They began with the cost of implementation, including licensing, servers, training and consultants. We looked at all supplier and external costs, but we did not calculate our own staff time as we considered that a sunk cost, Adams said. Next, they looked at payback. Again, we looked only at real dollars saved. Ninety percent of that was staff redeployment. We were able to redeploy an entire department, he said. The company did not include time increment savings, such as freeing up an hour a day for each employee. While we spoke to efficiencies in the narrative, we only calculated hard dollars that our company could put back in its pocket. Adams said Bentall Kennedy used the KISS principle keeping their ROI analysis simple. We focused on the tip of the iceberg, the savings we could clearly see and realize. The cost of paper or an hour of time was not included. That made it easy for us to feel extremely confident in our recommendation, and to exceed expectations upon implementation, he said. Adams said 80 percent of the work for the ROI analysis was easily compiled due to the simplicity of the company s ROI rationale. The additional 20 percent took a longer time to analyze. We used the same process to evaluate all four tools. After each demo, we recast all savings. We found that ImageNow was not the cheapest solution, but it clearly provided the most significant ROI and the quickest payback, Adams said. Presenting the Business Case Once the analysis was complete, the team presented their findings to an IT Steering Committee, and then to the Board of Directors Audit Committee for final approval. Adams said the business case was clear. We made it easy for our board to approve the purchase of ImageNow because we invested the time and energy preparing the business case ahead of time, he said. Knowing your numbers is critical to the presentation, according to Adams. Be prepared to know and defend your ROI calculations. Don t feel like you have to take the time to calculate a lot of fluff. You should be able to prove your business case with the basics. You shouldn t have to work too hard or dig too deep to find the justification. Bentall Kennedy was able to project a payback period of just 11 months, with hard dollar savings of more than $1 million per year due to increased efficiencies in its AP processes. We made it easy for our board to approve the purchase of ImageNow because we invested the time and energy preparing the business case ahead of time. Ben Adams Bentall Kennedy
Setting Expectations for Expansion: AmeriLife AmeriLife is the nation s largest privately owned senior-focused life and health insurance marketing organization. Based in Clearwater, Fla., the firm spans a multitude of senior marketing and sales channels and includes numerous subsidiaries and third-party administrators, each of which has its own way of doing business. AmeriLife began using ImageNow to automate paper-intensive processes such as claims processing. After a year of outstanding results, the team came to believe they would see even greater results by expanding ImageNow into several other areas of the business. Despite the clear benefits, Business Systems Delivery Manager Will Montefusco knew that convincing AmeriLife senior management to expand the IT budget during an economic downturn wouldn t be easy. So rather than starting with a request, he started by developing the business case calculating the return on AmeriLife s ImageNow investment. ImageNow was accepted and spoken highly of by our business users, but we had no way to calculate its overall benefit to the enterprise. We decided to conduct an ROI analysis in order to determine whether to invest more money into the product, Montefusco said. Montefusco had neither the time nor the budget to bring in highly-paid consultants to calculate ROI and prove his business case. Instead, he gathered a team of five AmeriLife employees and brought in a single consultant to lead the team and establish criteria for the analysis. The group spent about 60 hours completing the ROI analysis. The outcome of the study would be a presentation to the AmeriLife senior management team, highlighting the business case for the additional budget and headcount needed to expand the use of ImageNow across the enterprise. Return on Investment analysis looks at the benefits, costs and value of a specific technology purchase over time. The analysis can be done prior to purchase to help select the right solution, or after implementation to show its value or justify an expansion. There are four key components to an effective ROI calculation cost, value, data collection and credibility. Cost. When calculating the cost of a technology solution, be sure to look beyond initial licensing costs. Consider the cost of hardware, implementation and user training. Some solutions require hundreds of hours of professional services or user training to effectively deploy. You may want to include the time invested by your own staff, or consider your team s time a fixed cost and look only at outside costs. Determine your approach up front to ensure consistency. Be sure to go beyond initial implementation costs to obtain the Total Cost of Ownership (TCO), to include ongoing costs for maintenance, upgrades, additional staffing, etc. Value. While its focus is on numbers, ROI can be much more than a financial analysis. An effective ROI analysis identifies and measures the gains in efficiency and effectiveness of business processes. Some benefits, such as staff redeployment or reduced storage fees, can be easily translated into dollar amounts, while others cannot. Be sure to include the soft or intangible benefits, such as improved customer service and reduced risk of document loss or error, as they can be as valuable as the hard dollar savings. Data Collection. It is key to collect data for an ROI evaluation, but doing so should be relatively simple. Collect hard costs by comparing invoices or employee counts. To measure productivity gains, break the business process down into individual components and measure the time required for each step, both pre- and post-implementation. Collect just enough data to support your case. COMPONENTS OF ROI ANALYSIS 5 Proving the ROI of ECM to Your CFO Credibility. The data you collect and use must be credible, which means you should plan to present only clear, concise and understandable evidence. When presenting your case to decisionmakers, summarize the data but have additional details available so you are prepared for questions.
6 Measuring Hard Costs To begin the ROI process, the AmeriLife team evaluated the hard costs associated with offsite storage, printer s fees, paper and supply costs. Measuring the hard costs was simply a matter of evaluating bills from the previous year dealing with document storage and supply costs. We then compared these costs with invoices from this year, and the total number of pages stored in the ImageNow server, Montefusco said. AmeriLife identified hard cost savings of $32,000 in 2010. Because of the staggered nature of our implementation schedule, we know this number will grow exponentially in the next two years, Montefusco added. The team painstakingly listed each step of the process. A team member then measured task times for each step. A total cycle time per application was calculated, then validated by business users. In total, this important part of the process consumed about 30 hours of staff time. Since no process flows perfectly each and every time, the team took exceptions into account as well. We broke apart exceptions and issues, including estimating how often they happen. This helped us ascertain additional time required and determine the true overall cycle time per process, Montefusco said. The team then determined average cycle times based on assessments and reports that were run on their host application. SAMPLE COSTS Hardware Software Licensing Maintenance Training Implementation Professional Services Efficiency Gains While measuring hard costs was relatively easy, measuring efficiency gains was more complex. To obtain a broad view of the impact ImageNow has on AmeriLife business processes, the team decided to analyze both the least complex process and the most complex process. Claims Processing was identified as the least complex process, while the Agent Licensing Application process was considered the most complex. To measure improvements in employee production and efficiency for these processes, the team broke down each process as it existed before ImageNow implementation, as well as after. Better and Faster Processes AmeriLife calculated a 7.5 percent increase in user efficiency in claims processing, which had been identified as the least complex process. The average time required to process a claim before using ImageNow was 3.71 minutes. After ImageNow, each claim takes 3.43 minutes to process. We no longer have to physically date stamp and write policy numbers on every claim, Montefusco said. In addition, handling calls and addressing customer concerns is significantly faster, which not only saves time but improves our level of customer service. In the most complex process, agent applications, efficiencies increased 44 percent. Prior to using ImageNow, the application process took 36 minutes. With ImageNow, the process takes 20 minutes. Montefusco explained, The process is not only faster but better. Contracts can be worked simultaneously by multiple people in ImageNow. We no longer need multiple filing systems to track the status of applications. We can communicate faster between marketing companies and third party administrators. We ve also completely removed the need to track applications in a spreadsheet.
Sharing the Business Case Solid business case in hand, the team prepared to present these findings to AmeriLife senior management, along with their request to expand the use of ImageNow and hire an additional IT resource. The team combined the results of the two processes in order to present an overview to senior management. While the efficiency gains calculated ranged from 7.5 percent to 44 percent, for purposes of the ROI study, we decided to use the realistic and conservative figure of a 10% improvement in efficiency across the enterprise as a result of using ImageNow, Montefusco said. Based on its existing infrastructure of 84 users, 70 concurrent licenses and a 10 percent productivity gain, the team projected a three-year return on investment of 51 percent. By investing additional funds and expanding the use of ImageNow to other departments with 80 additional users and 60 additional concurrent licenses the three-year ROI was projected to increase to 88 percent. In addition to the three-year ROI numbers, Montefusco said AmeriLife senior management also appreciated some of the softer benefits that were presented. Our CFO in particular appreciated how ImageNow streamlines the auditing process. It used to take days to prepare for external auditors, with staff pulling an average of 100 files for review. Now it takes only minutes to prepare, as we provide the auditor access to ImageNow. Some of the hard facts the team shared with AmeriLife senior management based on their findings include: ~ ~ Documents are found and indexed at least three times faster than before. ~ ~ Agent time spent completing contracts was reduced from 4.5 hours to 1.25 hours. ~ ~ Misfiled or lost documents were reduced to less than one-third the industry average. 7 Montefusco said senior management was impressed by their work. We used hard facts to substantiate our request, he said. We graphed all costs compared to the benefits. The numbers were highly detailed. And because we were conservative, we were extremely confident in our projections. Senior management could see that our estimates were conservative so they didn t feel a need to grill us on the details. Employee redeployment Increased worker productivity Process acceleration/faster cycle time Print, copy and paper costs Storage space Improved customer and employee satisfaction Greater ability to share information Reduced risk of error or loss Ease of audits SAMPLE SAVINGS & BENEFITS Proving the ROI of ECM to Your CFO
8 Lessons Learned Our assessment was not scientific, but it was based on solid assumptions and was closely scrutinized, Montefusco said. Even though we took a very conservative approach, we still identified significant savings. We were able to show how expanding the use of ImageNow at AmeriLife would provide a better return on our investment, creating additional efficiencies across the enterprise. As a result of the ROI study, AmeriLife executives approved the hire of an additional resource to assist and speed up the ImageNow enterprise rollout schedule. AmeriLife also made the decision to implement ImageNow in the company s back office departments, including accounts payable and human resources. Generally it can be difficult to calculate ROI of software. However, we didn t have to dig very deep to find a return that convinced our executives that expanding our use of ImageNow would be a good business decision, Montefusco said. While AmeriLife s ROI project was successful, Montefusco offered advice to others contemplating ROI for a software product. Create a list of pain points in your business before implementing the solution. Several weeks afterward, meet with business managers to readdress the list and see how many of the issues were solved by the software, he said. Also, take time to develop old process flows with time values before an implementation. While we were able to pull it off, it is much harder to recreate these after the fact, he advised. Understanding the ROI of a given technology brings many advantages. In addition to selling senior executives, the process keeps the organization focused on the business impact of the investment. It also helps prioritize projects based on their true value, rather than their popularity. Focusing on ROI also fosters accountability. It helps organizations hold vendors accountable by insisting they take a more quantifiable approach to the project, and ensures project teams are accountable for the success of the project. Generally it can be difficult to calculate ROI of software. However, we didn t have to dig very deep to find a return that convinced our executives that expanding our use of ImageNow would be a good business decision. Will Montefusco AmeriLife
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