Now that you’ve adopted a new technology in your company, results are becoming visible. Some good things are happening, and some frustrating things. How do you know if it was worth it? In Stage 5, you’ll use real results to assess new technology ROI.
How and Why to Review your Return on Investment
Return on Investment (ROI) is a financial method for projecting the value of change in a company. We usually calculate ROI before committing to new technology. But, we have to remember that ROI relies on “best guesses” about future revenue, profits, costs, and cash flow. Once you’ve installed the new technology, why go back and uncover your mistakes? You have two things to consider:
- The mistakes in your projections may be painfully obvious, and you may need to show you care.
- When people are adopting a new technology, we need to reassure them it will be worth it.
When you assess new technology ROI with real results, you can uncover unexpected benefits. You can also recognize the people working to make the new technology succeed. Finally, any past mistakes get shown in context, allowing you to adjust and improve your plans.
Communicate the Emerging Benefits
First, you should identify and communicate the new benefits being realized by your company, your people, and your customers. Even if the rollout is going very well, everyone will appreciate seeing the success spelled out. We recommend sorting out the short and long-term results by answering these questions:
In the now:
- Have costs decreased or de-accelerated?
- Are your employees becoming more productive?
- Has the reliability and security of the system improved, reducing risks?
- Are your processes more efficient?
- Are you gaining new customers or sources of revenue?
If the “now” results are not there yet, you can focus on the long-term benefits of the new technology:
- Are you better able to compete?
- Are new goals coming within reach?
- Are you achieving a vision for the company’s future?
- Are you learning? (Example: Your forecasts are more accurate.)
What to measure your ROI against
You may or may not have ‘benchmarked’ the old system before you started installing the new technology. Frankly, it’s often a waste of time. At E6 Solutions, we have heard these remarks from companies who didn’t bother to benchmark.
We just couldn’t continue with the old system.
We knew that we’d have to change in order to compete and grow.
So now, compare the new technology to your old limitations. Communicate not only the improvements, but also the improved prospects for your company’s growth.
Quantify the Financial Benefits
- Higher revenue
- Lower costs
- Reduced/avoided capital investments
- Time saved
“Return on Investment” is defined as the “Gains minus Cost, then divided by Cost…” BUT this simple equation is easy to manipulate, especially in areas such as the monetary value of time saved. In the projections, costs are often under estimated, but possible gains may be overlooked as well. Finally, you can run multiple ROI analyses, based on the interests and experiences of your audience. At E6 Solutions, we believe that ROI is a tool to help you grow, and the more realistic it is, the better foundation you have for the future. However, you must use it as a learning tool, not as a sentence to frustration and failure.
Other Issues and Challenges
The most common ROI mistake, according to Harvard Business Review, is confusing cash and profit. That issue may explain why a project which appears to be running a good ROI is currently causing financial distress. Here are some issues to consider when you assess new technology ROI.
- Cashflow: The timeline of costs and benefits are usually different, and a minor error in projection can be crippling to the project. You may need to revise the project plan.
- Velocity: Is the new technology increasing the rate of change in your company? In the beginning, different results across departments can cause confusion and frustration. In the long run, velocity of change is an important competitive advantage that you can recognize by the end of the project.
- Payback Period: If you want to share your project’s progress with finance department, use this hurdle to set their expectations. Be sure to include depreciation and de-activation of the previous technology in the calculation.
- Be ready to recognize the project impact on people not considered in the original plan.
- If the learning curve isn’t what you expected, be sure and document the actual cost.
- If the initial benchmark measurements were wrong, be sure and ask for recognition and updating.
- Remember to distinguish the value vs. cashflow vs. profits, especially with people who have a different focus.
In conclusion
We hope that you never have to “backward engineer” ROI in order to rescue a project, but trust us–you won’t be the first!
Here are some encouraging quotes from experts:
Gareth Herschel, VP Analyst at Gartner:
Real change means changing people and processes, not just technology.
We live in a world of necessary and continuous innovation, so we need technology and processes that are designed to help us keep up with change.
If we want our colleagues to use data and analysis, then we need to focus on the point where they do so: the decision. Data without a decision is a distraction.
Jim Hare, Distinguished VP Analyst, Gartner:
Most organizations don’t have a shortage of data; what they have is a shortage of understanding the relevant data and how to apply it to help solve business problems.