"Has that software package that we purchased last year been a good investment?" That's the question often asked by companies who have been through a software implementation, and yet no one within the company or the software provider is able to truly answer it. No one ever took the time to really figure out the ROI. Many people in the software business use the acronym ROI (Return on Investment) somewhat loosely, but when cornered, do not really know how to gather the data to measure ROI. If they do know how to gather the data, can the numbers be trusted? Return on Investment is probably the most difficult benefit to measure when a new software package has been implemented. It's not so much that one particular area of improvement is difficult to calculate, but rather where to start gathering all of the data required for such feedback.

Let's start by dividing the whole concept of Return on Investment into 2 main components:

1. The Return received which can be measured in the following ways:

The reduction in time for certain processes due to efficiencies provided by the new software.

The reduction of costs that were incurred from "work-around" procedures, or other limitations of the former software package or no software package.

The ability to capture more market share due to efficiencies created by functionality provided by the new software.

2. The Investment paid to achieve the business processes that the company desires in order to allow the business to grow.

Now that we've covered what the 2 main components of ROI are, lets expand on those points.

Return
(Reduction in time for certain processes)

Many companies today have no idea of how to capture the average time it takes to process a sales order, or find an inventory item, or perhaps something as basic as finding a customer in the database. These processes should be flowcharted in detail as a starting point and that could be accomplished internally, or by a software or business solutions provider. One of the many benefits to doing this is the ability to clearly see each task involved in accomplishing a process so a time can be assigned to those tasks. If the flowchart is designed to also show who performs the tasks, the costs involved are calculated easier. Once the data has been established for the current process, some adjustment time should be allowed before measuring the process in the new software package. That time will vary depending on the complexity of the process and learning curve of the employees using the new software.

Reduction of costs from "working-around" the former software package or none at all

This type of cost savings is usually a "given" from the modernization that comes from implementing software where there was none before, or utilizing enhanced features available in a more current software package. These types of savings are more company-specific, because the old procedure was probably a temporary fix engineered by the company's staff to handle the issue at the time it was needed. Therefore, the benefit may be more challenging to determine by a software vendor since the technique used to gather the data isn't as repeatable as the data that comes from a flowcharting exercise.

Capturing more market share

This is generally more subjective, because one of the components used to measure improvement may have been the opportunity cost of losing sales under the former software package. A major focus in this area is usually the CRM (Customer Relationship Management) system provided by the new software package. Can this new system effectively give the sales force the data that it needs in a timely manner?

Investment

This is an area that's often overlooked in the ROI calculation. The investment required to purchase and implement the software will fall into a certain monetary range regardless of the software chosen. Often, the initial cost estimate only accounts for an out-of-the-box software package that falls short of the company's true needs. A decision must be made for every instance where a gap lies between the company's true needs and the software's capabilities, meaning, whether to change the company's process to fit the software or to change the software to fit the company's needs.

The ultimate goal should always be to provide a software solution that allows the company to operate as effectively and efficiently as possible within some proximity to their software budget. At this point, it's crucial to implement software that allows for rapid customization - software containing a development environment that actually modifies the database so that it operates exactly as the company needs. Why? Having the development environment within the product will eliminate the need to have the gaps filled by third-party software packages. The customized functionality will also operate more efficiently, since it will not have to send data in and out of the database to be processed, therefore increasing the return on investment even further. So keep in mind the software's ability to adapt to the precise needs of the company is a direct reflection on the total initial investment.

Conclusion

A company should know where they stand with their current processes before implementing a new software package. They should choose a software package that truly allows for rapid product customization to bridge the remaining gaps that let them achieve maximum effectiveness and efficiency. If a company is able to follow some guidelines, with regard to ROI, then they can truly answer that question…"Has that software package that we purchased last year been a good investment?"

Source:
MS Navision US 2001 Q3 Visionpeople


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