ROI calculations are commonly done in the pre-sales stage, while evaluating investment decisions. There are many methods of calculating ROI. This article is not about the methodology of ROI calculation. It is about the one important aspect which is often left out from the calculation.
The concept of ROI
All investments are vying for limited budgets. Usually prioritization is done on the basis of potential value delivered to business. It investments also go through a similar evaluation process.
While calculating the ROI, the cost side usually includes one or more of the following.
- Base procurement cost
- Accessories / Add-on modules
- Installation and implementation
- Annual maintenance cost
- Deployment cost
- Annual maintenance cost
- Upgrade cost
- and so on…
The benefit side consists one or more of the following:
- Time saving
- Improved <something>
- Increased quality
- Reduced errors
- Better security
- Faster business processes
- Elimination of manual work
- and so on.
These benefits are quantified and then translated into some monetary unit which can then be compared with the cost side. If the cost benefit analysis is favorable, the project will be executed.
So far so good. All this was a generic discussion. Now let us talk specifically about Office 365.
Although the following discussion is specific to Office, it can also be applied to any software application. I am discussing the Office platform here because it affects all people in the organization. Most other software applications affect a subset of people.
Office 365 ROI: Missing cost item
The missing item is the human cost. All these tools are procured by IT but these have to be used by all users. They are spending their time using these products. That time is also to be taken into account as the cost.
If the software is eliminating human intervention completely, by automating a process, then the cost of human effort does not need to be considered. This is true for applications which eliminate manual work by automating it in some manner.
However when it comes to Office tools, most of the business process improvement happens NOT through automation but due to usage of a more efficient method of performing business activities.
If the tools are not used appropriately, it INCREASES the time required to get the work done. This is where the COST of human effort comes in.
If human effort REDUCED as a result of Office 365 usage, it would be considered as a BENEFIT.
Why would people not use the products to their benefit?
It is assumed that everyone wants to improve. Therefore, if a tool or product offers a better, faster, smarter way of getting our work done, we would naturally want to use it to our advantage. True.
Then what prevents people from using it? Good question.
Here are the answers:
- Lack of awareness about their own inefficiency
- Habituation which leads to accepting inefficiency as NORMAL
- Inadequate effort put in making users aware of the benefits of new tools
- Minimal or no change management process
- Suboptimal training
- Lack of sustained effort to ensure that the potential ROI is actually accrued
As a result of these factors, IT keeps providing new tools and people simply don’t use it effectively. In fact, they even misuse good tools and PRODUCE NEW INEFFICIENCY. This is counter-productive.
Often IT tries to upgrade the tools people have and they resist the upgrade. If this happens too often, IT loses interest in forcing upgrades down the throat of all users. They simply say – why should I bother if there is no demand from the other side?
Now IT goes into reactive mode. They will upgrade only if: It becomes a technical compulsion or if users ask for it.
Technical compulsions could be some security issues, end of life of a product support, compatibility issues or some other reason which mandates a change.
Users are usually never going to ask for anything new when it comes to Office tools – because they are happily living in their so called “Comfort Zone”.
The new approach
Inefficiency is the biggest COST in any ROI calculation. If it remains even after new technology comes in, ROI calculation loses its meaning. It remains on paper!
Here are guidelines for handling this process more effectively:
- Identify, document and quantify the inefficiency which already exists (even before any investment decision is made)
- Identify ways in which these inefficient practices can be eliminated using existing tools themselves (this is always possible because all Office tools are severely underutilized)
- Involve users from the earliest stage of evaluation.
- Ensure that they understand the benefits in a language they can understand
- Pilots, product walkthroughs, evaluation should include business scenarios and processes
- RFP for the upgrade should include proof of business improvement on a long term basis as the final acceptance phase. Deployment, migration, upgrade are mere technical milestones but do not lead to effective utilization.
- Cost of change management, user awareness creation, skill building, ongoing monitoring and improvement should also be provisioned for. Of course, it will increase the cost but then it also ensures unimaginable benefits – thus improving the ROI.
- While evaluating new tools, look at the list of improvements available in existing versions (which we enlisted in item 2 in this list). Now consider whether the new functionality is eminently better than what you have in the current version – usually it is (that is why it is called an UPGRADE).
- Create a consumption plan with business focus. Do not create a consumption plan which monitors some easy to count technical measures like number of mails sent or chats conducted. These are misleading and do not guarantee effective utilization.
- Create a cross-functional team to evaluate, plan and execute the new technology adoption and utilization on a long term basis.
These are my thoughts based upon the work I do. I am sure you have also experienced this issue and have found your own remedies. Feel free to post your comments here.