BEWARE: Are You Mis-calculating Technology ROI?

If your ROI calculations for new digital technology solutions are not getting the green light – you may be using an outdated methodology. How to take into account the intangible value of digital implementations including Robotic Process Automation. One thing finance executives across Europe are familiar with is the need to maximise scarce resources and investments to drive improved performance. These two seemingly opposite forces are causing close scrutiny of any proposed technology investment, especially if not directly impacting front line sales. When it comes to new digital and automation solutions, however (think Robotic Process Automation, or supplier portals) traditional ROI calculations just don’t paint the right picture. If you are unsure as to how to work out the ROI of a potential technology investment – you are not alone. There are no simple standards or templates, and each company has its own list of priorities that impact this calculation. What is certain, however, is that technology today is a core enabler of performance, especially for Shared Services delivery. What’s more, new solutions offer probabilistic outcome evaluations, the effects of which are not immediately felt but absolutely impact value. What this means is that you need to update how you evaluate technology. Real Value = Intangible The challenge with identifying, let alone verifying, the business value of new enabling technology is that in today's organisations, value-added outputs are increasingly intangible – i.e., they don't show up in cost accounting but they significantly impact performance. Intangibles include things like business relationships, customer satisfaction, ease of use, and knowledge sharing – all of which drive improved business intelligence which drives revenue growth. Return-on-Investment 101 The basic calculation for a return on investment goes something like this: ROI % = (Return – Investment Cost)/Investment Cost x 100 If you are building a BMW or a Mercedes to sell, then this approach may make sense. But in a services environment you need a different approach. While costs may seem clear (have you really factored everything in, though?) calculating returns is anything but. Forrester Research's Andrew Bartels, in a post1 last year, went as far as to claim that old methods of ROI were holding back the adoption of new technology. Puzzled by low investment levels in apparently attractive new solutions like mobile, cloud, and smart computing, Bartels did some digging to find out why business customers were showing such reticence. His conclusion was that measuring ROI on the basis of headcount and operating cost savings as a result of automation was in fact a barrier for growth. Today's technology is no longer about doing more work faster, and with fewer people, Bartels argues. Instead, it is about "reducing the probability of bad business outcomes and increasing the probability of good business outcomes." What this means is that the intangible advantages and benefits of technology solutions may be hard to nail down, but are more real than ever – perhaps even outweigh the tangible numbers. Take Robotic Process Automation – interest in which is mounting, especially as BPO firms are announcing their own versions of RPA, based on collaborations with new, innovative software developers. RPA is so exciting at this moment, because it promises "fixes" to certain processes, without the costly, time-consuming rewriting of code into core backend systems. Instead, through clever integration at the user interface, process automation offers all the advantages of automated workflow and 24/7 access, with none of the downsides of real humans managing the process. Although it is still early days, and implementations to date have been primarily focused on manual transactions connected with loans or mortgage processing, the technology offers a lot of promise to shared services type of processing. What is causing some head scratching is how to evaluate returns. For while on the face of it, RPA may seem a cheaper solution, there are a number of costly implications for any process reorganisation on the kind of scale we are talking about. But evaluating cost is only half the story – and never is that truer than in implementing RPA. Enabling technologies like robotics will have a significant impact on process performance, which in turn creates a domino effect of "improvement" throughout the enterprise. Results include improved timelines, reduced numbers of inaccuracies, and improved customer satisfaction and collaborations – all of which drive value add, but are not easy to measure. What is clear, though, is that making decisions about such technology investments on the basis of headcount or cost savings is a thing of the past. So, where is the future? A modern approach to gauging ROI Taking a more appropriate, forward looking approach to ROI requires management to embrace the value of soft benefits – something finance executives in particular (and they are making the decisions, after all) are not exactly known for. Finance folk are also more comfortable with actual real live data, rather than statistical analysis and probabilities. Having said that, when evaluating the potential benefits of new technology you need to take into account its effectiveness (how does it contribute to results?), efficiency (what is the value relative to costs?), and impact (how will it benefit the enterprise?), apart from, of course, the immediate financial implication. Some of the softer measures that define these "benefits" include: Shorter timelines Fewer inaccuracies Improved customer satisfaction Improved team collaboration Smarter decision-making Access to data analytics that drive smarter decision making Improved customer service and support Increased user satisfaction leading to improved performance Automated business processes leading to more accurate information Better forecasting Improved controls Here are some additional guidelines to help you evaluate the ROI of new technologies in a more holistic, enterprise-wide, context: 1. How are you defining costs? Apart from the cost of the technology itself, you need to consider the cost of its impact on other systems already in place. There are also costs associated with training your employees to use the technology, and there are costs associated with new processes and new internal relationships. Finally, remember to include the cost of the ROI analysis itself. 2. How much time is required? A lot of work is needed to evaluate and implement new technology. While it's difficult to accurately gauge the commitment needed, try breaking the project down into smaller tasks to get a clearer picture. Once you have a better idea of time involved, you'll be able to project your resource requirements, and how this will impact existing roles and responsibilities. 3. Is the proposed project critical to the business objectives of the organisation? Shared Services today is as much about driving growth though improved performance and business insights, as it is about cost management. Ask yourself whether the technology you are evaluating supports your business objectives, and consider whether you might be missing an opportunity to improve the end-to-end process by focusing on one part of it only? 4. What are the known risk factors? Much of today's technology leverages mobile applications and cloud-based solutions, and this is exciting. However you should run a realistic risk assessment associated with these solutions. Ask the vendor to take part in this assessment, and to provide you with references as well as calculations. 5. Who will be impacted? A process is part of a larger workflow and changes in one area will have an impact either upstream or downstream. You need to be clear on whether that impact is positive or negative, and if the latter, how to mitigate this. It may not be worth it. 6. How does the technology fit into the overall enterprise architecture? While a solution on its own may sound great, consider the requirements involved in integrating it into the overall enterprise architecture. This is where many organisations run into delays and additional, unanticipated costs. Shared Services’ focus is today on seamless transition and integrated solutions. It may make sense, therefore, to start with integration. [eventpdf] At the end of the day, it’s not just about the numbers… No matter how solid your business case, and how convincing the ROI you can come up with, there are numerous factors that can derail a planned technology investment. Internal politics involving multiple stakeholders and conflicting internal goals, along with lack of senior sponsorship, will easily outweigh any proposal you can put on the table. In addition, users’ resistance to change is a strong determinant. The best you can do to mitigate this is identify your potential allies (those that wield influence) from day one, and get them on board. If you can convince a high-ranking client, or a member of the executive board, to stand behind your proposal for the right reasons, you may just be on to a winner (tip: remember to focus on the strategic objectives of the analysis). [eventpdf] Footnotes: 1. Old ROI Methods Are Holding Back the Adoption of New Technology References: Return On Investment In Information Technology; A Guide For Managers, by Anthony Cresswell, Center for Technology in Government, University at Alan E., SUNY [2004] InformationWeek: Business Technology: ROI Is In The Eye Of The Beholderhttp://www.informationweek.com/business-technology-roi-is-in-the-eye-of-the-beholder/d/d-id/1014661

BEWARE: Are You Mis-calculating Technology ROI?

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