ROI Analysis
Topics
• What Is and Why Do a ROI Analysis?
• Building Case to Go Paperless
• Paperless Solution ROI Analysis
Approach
• Business Case Example
• Real World Results
What Is & Why Do?
ROI Analysis
What is Return on Investment (ROI) ?
•
A performance measure used to evaluate
the efficiency of an investment
•
The benefit (or return) is divided by the cost of the
investment yielding a percentage
•
High ROI means the investment's gains compare
favorably to its cost
ROI = (Benefit-Cost)
Cost
Why Perform ROI Analysis?
• To decide if we undertake the investment or not
• Ask yourself:
•
Investment worth the money?
•
Favorable balance of benefit and savings vs. cost?
•
Helpful tool in evaluating the investment quantifying the
benefits
Practical Example: Buying a new car
•
Do you just buy or do you research first?
•
Edmunds, Kelley Blue Book, ask friends, do test drive?
•
Buy new or used? Lease or purchase? Cash vs. finance?
•
What is cheapest option?
•
How long will I will keep? How much will I use? Miles per year?
•
How are my driving skills? Lots of accidents and costs to fix?
•
Insurance costs based on my age and make/model of car?
•
New car has better gas mileage so less gas cost but car costs more
Look at sticker
• Overall cost – within budget?
• Option package – worth cost?
•
Better at resale time?
•
Warranty & service plan?
• Gas mileage & annual fuel cost
• Cost of new car vs. used car?
• Residual value vs. resell price?
Qualitative vs Quantitative ROI Measures
•
ROI may be calculated other than financial gain or $ savings
•
Impact to and on stakeholders
•
Performance and efficiency gains
•
CEO really wants this project to happen
•
Qualitative
= “Quality”, intangible, soft, non-numbers based
•
Quantitative
= “Quantify”, tangible, hard, able to measure
Qualitative
(soft, non-financial)
•
How do I look driving it?
•
Buy my favorite lime green or
best value silver?
•
Time in the shop and
maintenance?
•
Hurts environment?
Quantitative
(hard, financial)
•
Purchase price vs. money I
have to spend
•
Option package prices
•
(Car mileage * $/gallon ) +
maintenance costs
•
% value after leaving lot
Practical Example: Buying a new car
ROI = (
Savings
-Cost)
Cost
Calculating High Level ROI on Software Purchase
• Ask yourself:
•
Software product worth the money?
•
Yields benefit and savings vs. cost?
•
Wasting resources on technology that isn’t doing much for you?
•
Help business process efficiency, improve morale or make money?
•
Assumption: Software purchase to save money rather
Example
Savings
Product A
$50,000
Product B
$100,000
Example
Costs
Product A
$10,000
Product B
$80,000
Absolute savings value is meaningless without
considering the investment cost
Example High Level ROI
$10,000
Product A
$80,000Product B
$50,000 $100,000($50,000 - $10,000)
$10,000
400%
ROI
($100,000 - $80,000)
$80,000
25%
ROI
Other Evaluation Methods
Net Present Value (NPV)
– positive is good
•
Cash flow or savings over a period time less the initial cost
•
Money today is worth more than the same money tomorrow
Internal Rate of Return (IRR)
– higher is better
•
Takes into account varying cash flow or savings over a period of time
•
Calculates the “average” profitability or savings with extra credit given if
payback and or breakeven is sooner than later
Payback/Breakeven
– sooner is better
•
Time to recoup the initial costs without taking into account the time value of
money
Public Service Announcement (PSA)
DISCLAIMERS
On advice from my lawyer…
Note, I am not a financial guy…
BS in CS, not Financial Modeling…
Bottom line
•
ROI % is a good measure but not always accurate
•
NPV and IRR help to better determine ROI
•
Payback period helps to show if worthwhile
•
Using all measures together is best plan
Building the Case
Going Paperless
Average cost of one form
paper origination + ECM scanning
Printing, distribution, collection and
sorting, prior to scanning or
paper-based processing
$
4.56
$
2.84
$
7.40
Preparation,
capturing
and QA
Process-Critical Forms and the Mobile Workforce — Making the Digital Savings © AIIM www.aiim.org
Average cost of 10,000 forms
paper origination + ECM scanning
$
7.40
$
74,000
Process-Critical Forms and the Mobile Workforce — Making the Digital Savings © AIIM www.aiim.org
Building the case for Paperless Form Solutions
•
90% of corporate memory exists on paper
•
90% paper touched daily is just shuffled
•
Average document copied 19 times
•
$20 labor to file, $120 labor to find misfiling, and $220
labor to reproduce lost document
•
4 Trillion paper documents in US growing 22% annually
•
Paper costs = $0.10/paper and $15/pre-printed form
•
Ink, toner, printer hardware, printer maintenance & services
Value analysis
If we play that out to electronic data capture at first point of entry, then a number of additional benefits flow. Firstly, we
remove the costs of handling paper
forms
and of either scanning them in, or worse, hand-keying the data. Secondly, wespeed up
turnaround times
as the data will be ready for processing immediately on creation, without the elapsed time of collecting and scanning the paper form. Thirdly, we are likely toimprove the accuracy of the data
entered
, as it can be validated against data held in the application — no more unreadableforms, invalid ID codes or out-of-range answers.
“
”
Process-Critical Forms and the Mobile Workforce — Making the Digital Savings © AIIM www.aiim.org
