Calculating the true value of any project and quantifying the business impact has always been challenging. For instance, spending money on automated systems and software is highly likely to improve work efficiency, but what’s the monetary improvement of that efficiency and how should that be measured?
Most ROI calculations for new software focus on simple KPIs that are multiplied up to show a compelling P&L impact. For example:
“Using our software, a typical customer increases their lead conversion by 10%. Across your £10m sales pipeline this equates to an annual £1m in extra revenue, or a £200k profit increase”. Or, “our software increases service productivity by an average of 30% (via automation and improved SLAs). Applied to your total service cost you will achieve an immediate annual saving of £120k – a saving that drops straight through to the bottom line”.
Whilst the quick maths may indicate some very attractive numbers, most ROI calculations of this nature are flawed, and here’s why:
Anyone that runs a business knows the high number of changeable variables that impact success: external macro-economic conditions; changing dynamics in key customer accounts; variability of performance across products/ regions/ business units; competitor behaviour; impact of recent attrition or new hires; team culture and morale, etc.
And so, whilst your new software may be one variable that helps to improve performance, it is too simplistic to attribute success to just one factor.
3 Steps to a smarter ROI
1) Form your baseline KPI trend
Analyse historic data to create a KPI baseline to test going forward (post-software implementation). This should include a combination of SLAs and financial KPIs that you expect will be impacted by the new software.
2) Explore these trends and establish feedback
KPIs provide an indication of a trend, not an answer. Notable trends or outliers in KPIs should be explored. Dig into the data and potential variables impacting performance, considering both internal and external factors. Remember that KPIs and financial metrics are a narrow lens and can be manipulated and so ongoing qualitative feedback from employees and customers (if relevant) should be used to corroborate and enrich any KPI-based ROI analysis.
3) Seek continuous improvement
Review and iterate on both points 1 and 2 as your software implementation matures. As your business grows and changes so too should your baseline trends. Seek continuous improvement from your software applications – and be demanding and inquisitive.
These are just a few ways you can apply Smarter ROI thinking to your software projects. To understand more on how using smarter ROI techniques can help you determine the true impact of new software implementations, contact us today