When approaching a business case, identifying the impacted areas can seem daunting. Luckily, with a little help, anyone can start estimating the impact that a new technology solution can have on revenue, cost savings, and other benefits.
Technology solutions come in a variety of shapes and sizes; they are tailored to address needs across all types of industries, channels, and business segments. While no single technology solution can solve every problem, one business case methodology can address all investments.
But where do we start? Let’s begin by identifying the types of benefits to look for when building a business case.
Revenue Growth Leads The Pack
Imagine your organization is considering adopting a new customer relationship management (CRM) platform: Last quarter, sales did not meet goals, and executives are looking to you to bolster morale and drive more holistic leads and sales. To measure the impact of this new CRM platform, you can compare the sales before and after implementation for a quick and definable demonstration of the impact of the investment.
Let’s bring some numbers into this example: Last year, there were 125 sales at $10,000 per sale, and currently, this year, your organization has 150 sales at $12,000 per sale. The total amount of sales this year minus the total amount of sales from the previous year equals the realized value.
Our calculation looks like this: 125*10,000 = $1.25 million in revenue last year and 150*12,000 = $1.8 million in revenue this year; $1.8M minus $1.25M = $550,000 in value generated from this solution. Other key performance indicator (KPI) improvements can and should be considered as additional benefits.
|BEFORE CRM INVESTMENT||AFTER CRM INVESTMENT||INCREMENTAL IMPACT OF INVESTMENT|
|NUMBER OF SALES||125||150||+25 more sales|
|VALUE OF SALE||$10,000||$12,000||+$2,000 greater average value of each sale|
|TOTAL SALES||$1,250,000||$1,800,000||+$550,000 incremental revenue|
Benefit Impact Areas
We’ve already talked about revenue, but what other areas may be impacted by a technology investment?
- Cost-savings opportunities can also be a clear way to link investments to results. A new desktop management administration software might replace one or even several separate legacy software and hardware solutions that can now be retired — meaning the organization can discontinue license payments and support contracts. Retiring or reducing the footprint of an on-premises solution can also reduce costs for HVAC, electricity, and rental space. The opportunity for cost savings goes further. By retiring legacy software, and ultimately replacing legacy solutions, savings can be created through the consolidation of aging skill sets — in regard to headcount, recruiting, and hiring expenses.
- IT resource costs cover the rest of your potential IT cost savings, specifically related to efficiencies gained for your IT employees. Continuing on with the desktop management administration software example previously stated above, IT administrators no longer have to spend time tracking down issues, answering help desk calls, or installing updates for this solution. This saves significant time and allows IT to focus on other more valuable tasks — like more effectively keeping up with a backlog or taking on new responsibilities/tasks. You can measure this in terms of hours saved multiplied by an average hourly rate. This can also be measured in terms of full-time equivalents (FTEs) saved, such as avoiding planned hires. IT savings (e.g., help desk or outsourced costs) can be measured by the unit or hour.
- Then there’s process efficiency. Instead of measuring time saved, it’s much preferred to measure the number of units that are saved. For an IT department, measuring the reduction in help desk costs based on the reduced cost per call, or the ability to complete more calls in a shift, is much preferred over adding up the time savings. There are similar types of processes on the business side of the organization (e.g., conducting audits, sending invoices, and creating and reviewing documents, etc.). When considering business employee benefits and efficiencies, analyze what employees of a certain department/role are doing and identify any repetitive tasks you might be able to automate or eliminate.
- Before you try to measure people productivity, first try to measure your benefit in one of the ways outlined above. For example, a CRM system can help sales reps become more efficient — this can be measured in terms of time saved and their hourly salary, but it is more useful and credible to look at the number of leads met and closed. More efficiency might mean more leads contacted; and more leads at a similar close rate should mean more sales. So now, with more revenue on the line, go back to the first benefit category and trawl for additional cost savings!
- But that’s not all . . . non-financial metrics should also be considered. For each of the above categories, there will be some non-financial KPIs that will serve as inputs to measure financial benefits and cost savings, such as the number of licenses reduced, the time it takes to process a contract, the cost per help desk call, etc. But we’ve included this as its own category for other KPIs that cannot be linked to a financial benefit, either because they’re very difficult to measure or just simply can’t be at this time. For example, customer satisfaction is a key metric that may not always be easy to tie to direct sales.
- Value can also be a key benefit related to a business opportunity — though these end up being more conceptual and thus harder to measure and tie to any one investment or process change. For example, reducing the risk of a data breach or other related IT security incident is important, and most everyone will agree that an IT security solution is a smart and necessary investment. But how do you measure the variability of what a cybersecurity incident will cost? It’s impossible to truly know the effect that will be had on your organization if, say, hackers infiltrate your system with malware or a laptop with confidential information is misplaced in a public space. You may not know the exact cost, but you can estimate it — whether from your own experience or third-party research. This approach also applies to other benefits; improved customer satisfaction or new merger opportunities are definite areas of value, for example, but they are influenced by a number of internal and external factors, making it difficult to measure and link an amount of impact to a specific investment or task.
Regardless of the type of technology investment, the benefit categories described above are a great place to start developing the business case and investment justification. Get creative, think beyond the obvious impact, and explore the second level of influence. Stay tuned for next month’s blog!