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Proving Return on Investment

A step-by-step analysis of tech spending.



By Bert N. Langford
03/31/2010

Return on Investment, or “ROI” can be one of the most difficult things to legitimately prove to top management when it comes to justifying software for cutting costs, gaining new sales markets or both.

But proving ROI need not be as difficult as you think. Take the time to look closely at the present processes and identify where you believe there is wasted manpower to perform different tasks and areas where an excessive amount of manual effort goes in to the production processes. Once you can identify these two areas, you can then prepare an RFP to the vendors serving the subject area(s), identifying by item what you want to achieve.

The trick is to remain objective as to expectations through a thorough analysis of what your company requires today versus after ROI results come in.

Three Steps to Achieving Realistic ROI Goals

1. Designate a project management team composed of three or more executives including the department head(s) responsible for the end users operating the software, someone from IT to assist the end user department head in preparing the project plan from the software side including internal IT requirements; and a top executive responsible for bottom line results who can help in passing judgment and provide direction in terms of establishing ROI feasibility from a financial perspective.

2. The Project Team would be responsible for the project plan that will result in a valid and objective projection on benefits and deliverables proving first year and additional year savings and/or new income and after the cost of the software, including maintenance/support, is factored in.

3. The Project Plan would include identifying on a line item basis the workflows and software that are currently in use versus what happens after the vendor’s software is fully implemented to identify the specific deliverables and their contribution to ROI. Look in particular for integration with other software used by your company (including Excel) and even with the printer as key deliverables.

When the results rough draft can be made available to the software vendor, the vendor should verify your work in terms of its software’s capabilities; as well as provide conditional safeguards for the correct use of its software where otherwise user deviation will compromise or prevent any specific ROI deliverable. Just keep in mind that the vendor cannot guarantee the results as they depend largely on your correct implementation and use of the software.

Identify the Deliverables

The next step is for your company’s project management team to agree upon a set of achievable ROI benefits and deliverables. Use Excel to establish line item “before” and “after” projections.

Then you need a detailed implementation flowchart for “first year” and “additional year” expectations for determining the true ROI. For first year expectations, there will be an implementation period as the software is rolled out, including the necessary learning curve before users are totally fluent and productive in the correct use of the software. The more profound the software application, the longer the setup period might be. This means that the realization of complete ROI savings/income will not start until AFTER the software setup period has concluded.

Even so, a truly beneficial application can deliver ROI in a year or less if the Project Plan is properly prepared and executed, with setup of as little as three months.

Most importantly, the end user department manager should become the conduit between end users and the Project Team to ensure accurate definitions of end user (or other management) requirements and work with the vendors to ensure the appropriate results.


Bert N. Langford is U.S. Technical Advisor for dataplan GmbH.
E-mail him at blangford@dataplan.de.

By Bert N. Langford
03/31/2010







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