There are many reasons to consider a new technology investment for your company. For example, new management software, or advanced equipment like drones and on-site cameras, could improve your company’s effectiveness and efficiency by reducing costs, redundancies or errors in several areas of operations.
The question is, “How does one determine whether the new investment will have a net positive effect?” The answer is, “You need to conduct a Return on Investment (ROI) analysis.”
During a recent online seminar conducted by David Wagner, a poll of attendees revealed that over half admitted to not conducting ROI analyses in advance of making technology purchasing decisions. Perhaps this is due to a lack of understanding about why a technology ROI analysis is important and the inputs that should be considered.
Wagner is Vice-President of Product Development Marketing for construction software developer Ineight. He says the key to an effective ROI goes beyond considering the “cool features” of a new technology investment promoted by the vendor, to being able to measure and calculate the actual value and benefits to your specific company.
Wagner uses the example of document bottlenecks that can occur consistently throughout a company’s operation to describe the ROI approach.
“We know from previous studies that the average construction professional spends five hours a week searching for information. Maybe they’re going through all their sites, their emails, their local file system. That’s almost half a day each week, or 264 hours a year, that’s wasted on this search for information.” In a large organization of 50 professionals with average annual salaries of $80,000, that’s half a million dollars a year spent just searching for information.
“What happens if a product can reduce the amount of time spent searching for information down to, say, three-and-a-half hours?”
Wagner asks. “That alone would equate to a savings of $180,000 a year.”
However, Wagner says that investment costs go beyond the purchase or subscription price of the new management software platform itself. What about hidden costs — hand-held devices required to access to the information gathered through the new software, additional server-side costs required, outside experts needed to train staff? How much time away from regular day-to-day responsibilities will staff training take, and what is the cost of that lost productivity?
On the other hand, there may be savings to be calculated. The new software or technology may be cloud-based, resulting in a reduction of company server update costs. Perhaps an older product can be eliminated, reducing licensing costs.
However, Wagner cautions that full adoption of any new technology takes time — another ROI input that must be considered as well.
“It’s not unrealistic that over the first year, only 80 per cent of users are leveraging the technology fully,” he says. “And maybe they’re only using 50 per cent of the features, and only on 75 per cent of the projects.” While each company’s experience will differ, this will impact the break-even point of the investment.
Wagner also points out that delaying the adoption of new technology has costs too.
“Every day you do not move forward, you are wasting money. You might say, ‘Well it seems like a good idea, but we’re not quite ready.’ For every time you say that, what are you missing and how much money could you be saving? Cost of delay calculations are a measure of the benefit you could be deriving. They offer a perspective on how much time is wasted by not doing something today and waiting until tomorrow, or next month, or next year.”
An ROI analysis presents the opportunity to connect all these dots and many more, prior to making any final purchase decisions.
John Bleasby is a Coldwater, Ont. based freelance writer. Send comments and Inside Innovation column ideas to email@example.com.