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This blog was originally posted under: The Norfolk Punt
One of our clients recently asked me about identifying savings associated with technology. It’s not quite as easy as vendors sometimes imply. I’ve seen huge ROI claims associated with buying, say, analytics software, because the contributions of the analysts (asking the right questions) and the business (putting the answers into operation) were ignored, and the business returns allocated entirely to the software purchase. On the other hand, it is mostly about common sense and scope, although never forget that in less mature organisations, the answer may affect people’s careers and politics will intrude.
So, here is a brief overview:
- Work out what the status quo is costing you (and remember to factor in the benefits too – technology that saves you a lot is worth less if it makes the business less productive). Defining the scope is important – deal with the whole business system, and a small saving over many years may be worth more than a larger saving just at installation (but remember to discount the future value of money). Remember, also, that a person (“FTE” – full time equivalent) costs a lot more than just their salary (around twice, depending on level but see here – and sanity check the calculation in your environment). This could be quite accurate, if you are allowed to be honest and include everything.
- Do the same calculation with or without (as appropriate) the technology you are assessing. This will be, to some extent, a guestimate, as you may only have “actuals” for one case; and the technology may change the process; but this could be quite accurate unless vested interests are allowed to skew the result.
- Tangible benefits are best. Beware of placing infeasibly high values on intangible benefits – unless you actually want to skew the results.
- This will give you the saving (or cost) actually associated with the technology. You now have to decide what percentage of this saving actually belongs to the technology and what belongs to the people/process – perhaps you could have performed better (at some cost) by hiring better people or training the people you have, or even by making your current staff more motivated, without acquiring the technology (change by itself can be motivational, just by making life more interesting – see Herzberg). This often ends up as an “informed guess”, skewed by vested interests and politics – but the process can be quite useful in itself.
- Remember, that if you are claiming savings from staff reduction (as you usually are), you don’t actually see the savings until you sack or redeploy the staff gainfully (both processes cost money, by the way, which should be included in the calculation). If redundant secretaries, say, are kept on as status symbols for top execs, the saving associated with “automating them” is about zero.
In summary, when calculating the savings from automation, consider all costs/savings, discounted in the future; question all your assumptions, be careful about costing intangible benefits, remember that if you are claiming benefits from sacking staff, you must actually sack or redeploy them – and always be aware of vested interests and politics.