In a recent post, I discussed the cost of buying new technology. This is a common question every person trying to purchase new technology in their organisation gets asked “Where is the business case?”. However, the business case is not complete without highlighting the benefits of buying technology. To prepare the business case you will need to know a few things. This series talks about the two important aspects of financial analysis of the technology purchase decision path – Part 1 (costs)and Part 2(financial benefits).
Part 2: What are the benefits?
Most organisations have (presumably) gone through a journey to determine if purchasing technology is the best way to solve a problem. But hopefully in most cases they are analysing their options to check if this is indeed the right answer. It is very common for investors to want to see analysis on the options available to solve the business problem. Business cases traditionally include the costs, benefits and dis-benefits (if any) alongwith the risks associated with the three business (solution) options – Do Nothing, Do Minimum, Do Something. The Do Minimum and Do Something options may sometimes be combined into one if the project is small. This sections is usually followed by an Investment Appraisal of all the options to determine the best solution. As per the language, it is obvious that business cases are geared towards facts and figures.
Given all solution options require the definition of benefits and dis-benefits, this post focuses on highlighting the categories of benefits and providing some examples for each. There are broadly three categories of benefits – Strategic, Financial and Non-Financial for every solution option. Below describes each category and the examples of benefits relevant for (HR) technology purchase decisions.
- Strategic: Most organisations tend to have a strategy. It may not always be obvious to the employees (yes that is a whole different problem to discuss in another post!), but there is usually one that is reviewed every year and re-defined every 5 years or as appropriate.This should ALWAYS be the first set of benefits or alignment to consider before making any decision. This may not be obvious to a lot of people writing the business case BUT should be the most important factor to consider. If a company’s strategic direction is to be a technology driven business, then investing in technology may carry a higher weight than any other solution. Another great example of a business strategy might be to be a leader in innovation in xyz industry.To be innovative in an industry, technology usually plays a big role. Given this, again investing in technology will carry a higher weight. However, if your business strategy is aimed at optimisation, investing in new technology might not carry the same weight as perhaps business process re-engineering or investments in upgrades or restructures and so on. So bottom line is, knowing the strategy and aligning your solution options to support the strategy is possibly the most important benefit to highlight in the business case.
- Financial: This is definitely the most awaited section of every business case. A financial benefit is usually simply defined as one that either assists with increasing value or reducing cost ultimately leading to a healthier balance sheet for the organisation. But determining these benefits can be difficult especially if the organisation has not measured its processes, people, technology and relative performance in the past. YES, without having measured all those aspects, it is very difficult to get an accurate assessment of benefits that can translate to an estimated dollar value. That said, it is possible to make assumptions about all these aspects in order to calculate the dollar savings. This is an acceptable option depending on the risk appetite in the organisation and where it is in the lifecycle of solutioning. However, if your organisations is not at a crisis problem solving point, then getting a measure on people, process and technology can help in dollar savings calculations as well as understanding the problem better and hence solving it. Here are some key considerations when measuring each of those components and related dollar saving calculations:
- People: How many people does it take to do xyz…? How many hours does it take Mr. A to do task xyz…? Depending on the new solution on offer i.e. technology, how does that either a) reduce number of people required? or b) reduce number of hours required to do task xyz…? or c) both the above perhaps? But don’t forget if it does reduce FTE in any way, you must be able to indicate how that saving will be had i.e. are you going to reduce the headcount not required or redeploy them or get them to do additional work that was previously not being achieved due to time constraints? In some instances there maybe a saving associated by replacing a higher paid (highly-skilled) individual with a lesser paid individual. However, in this scenario it is important to account for the replacement recruitment costs and any training related costs. Another people related saving could be attributed to removing need for manual tasks and hence the staff supporting those tasks.
- Process: This is an area that offers significant opportunity for savings usually. However, in order to realise those savings a key pre-requisite is the need to have documented processes with baseline service performance measures. Without having the baseline, it is difficult to calculate the improvement in execution of processes as well as improvement in performance thereby reducing the number of errors or re-work required. Process improvements can be measured by reducing the amount of steps in the process by automation enabled by technology. It is also measured by the reduction in the amount of time spent end to end in delivering a particular service to the customer. This will enable an increased amount of transactions processed and help transfer or share process ownership.
- Technology: This is again an area that is usually not measured by HR departments. In some cases, IT departments do measure system performances but not usability performance and certainly not combined with process. This is truly an area of immense learning and empowerment if measured and utilised. So what does this look like? Start with measuring basics, how many ‘active’ users exist in the system; what is their completion rate for key tasks or transactions they are expected to perform?, how long does it take the different type of users to conduct their tasks especially when you measure the end to end time taken including non-system process steps?; and so on. There are very many websites to get information on measuring usability metrics and can guide this.
- Non-financial: This is an area of the business case that is usually done well by most organisations. Below are examples that I have seen over the years of technology implementations:
- Improve services to business: while this is a very loosely defined non-financial benefit, it is one that can be justified when combined with financial benefits. This is all about increased quality and perhaps quantity of services and transactions provided to the business i.e. end users.
- Improved HR capability: This is a commonly used benefit. I am not entirely convinced about this one, especially due to the fact that just replacing manual transactions with technology giving HR more time to be ‘strategic’ DOES NOT make HR strategic. What however does improve HR’s capability is the process of implementing technology and the skills they (un)learn. Learning or improving project management, negotiation, vendor management, data management, configuration management, planning, testing, and so on are excellent ways to lift HR capability. And I would go as far as saying that these can be associated with cost avoidance benefits in future projects hence aiding in financial benefits realisation.
- Reduced errors and re-work: This is a border line financial benefit. It reduces cost of unhappy customers or end-users as well as the re-work and hence the hours required to process transactions. This is again a cost reduction and avoidance benefit and hence may be valuable for financial benefits realisation planning.
- Improved data integrity: This is again a border line financial benefit. By implementing one single source of truth system, it is much easier to improve the quality of data available but it is only true when business rules are put in place for what can be entered in the system. When going from multiple systems to one single system or integrated systems, this is a commonly touted benefit.
In summary, there are many areas and methods of defining benefits and measuring them. However ensuring that you consider all the appropriate categories of benefits will yield to a stronger business case.