By Patrick O’Neill, Founder and President, Redhand Advisors
Purchasing a new system? Before embarking on the implementation process, you’ve got to properly assess needs, develop a strong business case, correctly calculate the return on investment (ROI), and champion internal buy-in.
Redhand Advisors and Origami Risk recently hosted a webinar titled “Making the Case: The Value of Risk, Compliance & Safety Software.” Paul Brandel, Risk Manager at US Foods, and Neil Almond, Insurable Risk Manager at Tesco, joined Gina Rothweiler of Origami Risk and myself. Here are our four key takeaways on strategies for properly identifying ROI for a new system investment.
Start early when estimating ROI
Building an ROI case should not be a quick, last-minute exercise, though organizations typically start near the end of the selection process when it’s time to assemble the business case for investment. ROI calculations and analysis should start when the project is just a glimmer in the eye of the organization, so to speak.
If you’ve done all the selection process legwork, you should already have a list of benefits that you can identify costs and savings in order to calculate your ROI. When presenting this information to leadership, aim for objectivity and show the thought process involved in making the calculations.
Consider the following tips:
Resist the urge to downplay costs and play up savings, because the reality is, costs matter. The more you can back up your calculations with detailed documentation, the more bulletproof you can make your recommendation.
Make apples-to-apples comparisons. For example, if you’ve identified that it will cost 25% of a staff member’s time during the implementation, represent the potential long-term savings as percentage as well, rather than a per-hour rate. Otherwise, your ROI calculations may look subjective or get thrown out because they’re not congruent.
Factor in associated costs
Organizations should have a clear breakdown of the system costs, which can be pulled directly from the vendor’s proposal, but should also consider other costs associated with the investment including:
- Potential costs of hardware and equipment upgrades needed
- Potential use of internal personnel, IT or project managers
- Hiring third-party consultants to manage the project
- Hours spent on implementation by current staff needs to have a cost value assigned to it — as in, “We’re going to spend 25% of our time over the next nine months doing an implementation.”
- Overlapping costs if you’re transitioning from an existing system, as you may need to cover three to six months of contracts with multiple vendors
- Potential cost overruns, which are not uncommon for these types of projects. Budget an extra 20% to 25% for vendor costs stemming from unexpected challenges or features. Add that to the ROI, or your leadership will call you out on it later.
Pinpoint the savings
Identify all the potential returns on this investment and attach a value to each item, focusing on the efficiencies, speed, and automation of the system:
- Staffing savings, such as the ability to delay adding positions. However, don’t forget you may have to add a RMIS administrator, which could cut into savings.
- Reduced claims costs from the improved processes and efficiencies gained. For example, quickly opening the lines of communication with an employee in a Workers’ Comp claim, may significantly impact the cost savings for that claim.
- The RMIS may also provide significant program savings, via better data, faster reporting, and elimination of ancillary software. Automated data collection can save money during renewals, and quarterly actuarial updates may not be necessary with the RMIS. Your RMIS even may perform all the tasks of multiple legacy programs and their associated bolt-on systems, eliminating costs for using and maintaining those programs.
- Don’t overlook the intangible savings that are often hard to measure. Can you find a way to represent employees’ ability to perform higher-value work or how the RMIS can break down silos and create more collaboration? Try to demonstrate how the RMIS can reduce duplicative work (i.e., multiple departments collecting the same data multiple times) and how having more accurate, secure data will help make compliance easier.
Once the ROI is calculated and quantified, you need buy-in from key stakeholders to close the deal. Detail the positive benefits they’ll see first-hand, such as faster claims processing or elimination of manual processes that can cause human errors or omissions.
Testimonials and references are powerful. If you can talk to a peer company about original estimations and the real-life outcomes, that may help connect the dots for your case. Ask what sold them on the software or what their references said.
Finally, remember — and remind leadership — that ROI on software typically is not realized for three to five years. Prepare them for the journey.
To learn more about other insights presented, view Origami’s “Making the Case: The Value of Risk, Compliance & Safety Software” webinar. For more information on calculating ROI and making a business case for RMIS to your organization, schedule an inquiry call with Redhand Advisors.