Many companies are required to create a return on investment [ROI] analysis for purchases over some dollar amount. I have put together many ROI analyses for BPM projects. Each time, the payback was achieved in less than a year.
The basis for an ROI analysis is Savings less costs equals the return on investment.
The Costs
The costs of a BPM project include: The Software, The Services and [if you are to be accurate] The Time that 'your people' put into the project.
The Savings
There are 2 kinds of savings - hard costs and soft costs. Hard costs are savings that can actually be counted. Soft costs are savings that might happen or cannot be measured with any certainty.
Automation
How much money will you save by automating non-value added tasks? Many process improvements allow computer software to perform a task or tasks. You should be able to measure these savings.
Efficiency
Your re-engineered process may have reduced the steps in your process or eliminated an activity entirely. This requires that you measure the 'as-is' process and estimate the measure from the 'to-be' process.
Compliance
If you are required to be compliant with some standard, there is a cost associated with that activity. Can your re-engineered process reduce the cost of compliance?
Quality Improvements
Re-engineering your processes gives you the opportunity to either improve an activity or add a step that that will improve the quality of your product or service. What would a 10% improvement mean to your company in dollars? What impact will improved quality have on your customer base?
The ROI
Once you have identified the costs and the savings, you can easily generate the payback time, the net present value, the internal rate of return, etc. Many companies will have their own format for ROI analyses - emphasize what is important to your company.
Managing your business processes more efficiently will increase revenues, lower costs and improve customer relationships. It can differentiate you from your competitors. It can be the key that allows your company to break out as the market leader.
Your Thoughts...
What steps has your company taken to be a market leader?
Keeping it Real!
Scott,
I'm pleased that there are leading voices emphasizing the value of a credible business case ROI for BPM projects, and commend you for your post. However, so much more work can and needs to be done surrounding business case ROI for BPM.
Business cases for BPM are far more exhaustive and explorative than merely simple savings and cost mathematics exercises. Other important considerations are time, cashflow, prioritized capital investment and relative ROI comparisons to other projects/investments. And, a BPM project opens up all kinds of sensitive, sacred cow, political land-mines, and hotly contested opinions. If done correctly, a BPM project can actually shape company strategy, but it's messy, blindly honest, and potentially divisive. Identifying savings is one thing, but WHAT and HOW you measure those savings, WHY you perform those processes at all, and how you tie results back to ROI assumptions are essential to a credible case.
You identify compliance as an area that has cost associated with it, and re-engineering it may reduce some of that cost. Yes, but the unspoken major benefit potential... dramatically reducing the impact of current or projected legal or federal penalties and fees, time in defending alleged infractions of a non-compliance event, etc. In many companies, improving compliance results in millions of dollars in cost avoidance.
The projections of ROI ultimately means someone has to OWN the projected benefit realization... a P&L exec saying, "yes, I'll stake my job/bonus on attaining those projected benefits and EBITDA results." If no executive owns the benefit realization,... if no one provides ongoing measurements of the process, then I'll submit the benefits didn't happen, or minimally, are not defendable.
And, a business case typically is not a one year payback exercise, as posited, unless the processes are simply low hanging fruit, and non-strategic. BPM offers true transformative potential, and thus typically investment and benefit yield often extend over 3-5 years, although admittedly results could be seen in initial years.
Finally, the real story for ROI is not creating an ROI projection to support BPM projects. The real action is PROVING that the benefits actually occurred. Very few companies ever go back to measure the impact of an approved and implemented project. BPM automation actually provides a platform by which companies can actually measure true time, material, and capital usage within a refined process. Capturing this type of data and tying to the business case structure provides CxO's a, heretofore impossible, method to show continuous goal attainment and ongoing ROI. I've been engaged in this innovated ROI measurement for the past year, and it provides CxO's true innovative power and insight.
Thanks for the post. It's only through debate and discourse that we advance the industry.
Craig Lashmet, Bizappia
Craig Lashmet, I am 100% agree with you