Return on Investment for BPM Software
Return on Investment for BPM Software
Companies implement BPM solutions to solve real business problems. A BPM publication interviewed companies that had implemented a BPM solution and discovered:
o 100% reported increased productivity
o 95% reported better quality of service
o 82% reported lower operating costs
o 82% reported shorter process cycle times
o 80% of respondents said they reduced operating costs more than expected
while 89% increased their productivity more than expected.
These insights show that a BPM solution provides many more benefits than just shorter cycle times.
Over the years, I have come to several conclusions: a successful BPM implementation will always pay for itself, and the overall business benefits achieved exceed expectations.
The value of business process management
The dictionary defines value as relative worth, merit, or importance. An alternative definition is the estimated or assigned value. No matter how you look at it, you will have to estimate or assign value to benefits.
In the direct cost category, these are the key areas to consider:
Efficiency – higher productivity
Reduced cycle times: change requests go from 45 days to 5
Reduced operational costs – automation replaces non-value added tasks
In the category of soft costs, here are some places to look for benefits:
Better quality of service – Intuitively, you know this is good for your business, what dollar value will you put on it?
Move to a paperless office: At the very least, it’s easier to find a document on a computer than it is on someone’s desk.
Visibility: Many companies hire “program managers” to manage a process. They spend much of their day determining the state of something within that process. Computer software can provide this information in seconds.
Time to Market – Key benefits of getting to market sooner include: More revenue; More market share; More mental involvement; Better product positioning; etc.
Mistakes – Mistakes always cost something. The dollar amount is quite small in the early design stages, but by the time you’re ready to ship it to the client, the error can be in the millions of dollars.
And, having collected all this information, how would your company like to see the return on investment? Refund in months? Annual savings in dollars? Net present value? future value? Internal rate of return?
direct costs
Direct costs are those costs that occur all the time and are relatively easy to document. Be sure to identify all of your assumptions and then generate the values. The only discussion should be about the assumptions.
I’ve identified a few places to look for hard costs.
1) Reduced cycle times
Interview workers involved in the process. Document your process. Pass this document through the people interviewed to check its accuracy. Determine how long each of the tasks within a process takes. Determine a cost for the entire process, either a month’s worth or a year’s worth.
2) Automation of certain steps within a process
Measure the time it takes to perform an activity that can be automated, and then delete that time once it has been automated.
3) Ease of use
Measure the time it takes for a user to perform a task currently, and then measure the time after the new system is implemented.
4) Elimination of duplicate steps or activities
The time it took to perform the duplicate step will be deleted.
This list is not intended to be inclusive. You could think of others based on your company culture.
soft costs
Indirect costs are ‘soft’ because they don’t happen all the time or you will have some difficulty comparing them to a dollar value. A mistake could cost you very little or be devastating. What number do you put in an ROI analysis? If you just want to be more organized, what number do you put on it?
It is more difficult to allocate dollar amounts to soft costs. This gets very subjective, but I can identify a few places to look.
Efficiency has several subcategories.
a) Faster time to market: Some of the benefits of getting to market sooner include: More revenue, More market share, More traction in the mind of the consumer, Positioning your products more easily, Starting to develop a “barrier to entry” for competitors. before, etc.
b) Product Quality – If you have more time during your process cycles, you should be able to improve your product quality.
c) Shorter processes should reduce product costs: Lower costs will give you more pricing freedom.
Mistakes/Mistakes – Some mistakes may not be that costly, however, I know of an aerospace/defense contractor who made a mistake that cost them $2 million.
Company Image: Your efficiency can be a marketable advantage.
Once again, this list is not intended to be inclusive. You could think of others based on your company culture.
ROI Analysis
There are many different ways to view your ROI analysis.
One way is to take some known information and extrapolate the amount. InformationWeek says that engineers spend 25% of their time looking for information. If you have 10 engineers getting paid $100k/year, you could save $250k per year if you were paperless.
Otherwise, InformationWeek says that 75% of a company’s projects don’t finish on time. You could look at the costs of project overruns and cancellations.
Otherwise, many studies say that it costs $2,500 to manage a change request manually. An automated solution would cost an order of magnitude less. If you generated 1,000 change requests per year, you could save $250k per year with an automated system.
And the most common way, I have created a very comprehensive ROI spreadsheet for working through business process management solutions.
It contains 4 main sections:
Vault
The Vault section deals with information. How will you view or access the information in the vault? How long does that take?
process
The Process section deals with tasks. What tasks will be performed? How long does that take? What information will they need to complete the task? How long does it take to get it? What information will they create as a result of their tasks? How long does that take?
Collaboration
The Collaboration section revisits the information. How will you share information with others? What information will you share? Will they be working together on any information? How long does that take?
Results
Since companies have different views on how they like to see a return on investment, I’ve created a spreadsheet that generates the most common results: Annual Savings; Repayment in months/years; Net present value; ROI as a percentage; and Internal Rate of Return.
A comprehensive ROI analysis would likely include a spreadsheet with hard dollars and could include a tab for soft costs or a separate document identifying soft cost issues with some dollar amount assessed.
recommendations
I have been helping prospects/clients with ROI analysis for almost 20 years.
1) During those 20 years, I have never seen a BPM solution that didn’t pay for itself.
As an example, the simple process of managing the creation of legal documents [our smallest ROI] It will happen in about 6 months. On the other hand, a contract manufacturer is saving about $1 million a year.
2) Most of our customers say that the overall business benefits they got from their BPM solution exceeded their expectations.
3) Having been using our BPM solution for a while, they realize that business process management could be their competitive advantage.
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