Instant Access to Information: The Return-on-Investment Case for Information Management Systems

Michael Osterman and Robert Hanson
February 26, 2009 | COMMENTS

Information management systems can offer significant benefits by improving the speed and quality of access to information, reducing document management and storage costs, and streamlining data-intensive processes for improved employee productivity. These systems will become even more important for organizations to consider during difficult economic times when both IT and business staff members must become even more productive in an environment of declining budgets.

Overview of the Information Management Problem

Evaluating or analyzing your own information management systems by considering both the value and the costs can often require deep analysis and detailed estimates. Alternatively, it can be as simple as just quantifying the cost of running certain critical business reports and looking to find a better, cheaper way of accomplishing the same objectives. Consider these scenarios:

• A financial services company needs to have access to both individual accounting reports, as well as aggregate data across different divisions for one of its financial products
• A government agency is moving away from legacy computer systems critical to its operations, but wants to maintain easy access to the data they contain in standard formats for many years to come
• A public company is involved in a major consolidation effort after a merger and needs to maintain access to accounting data from different regions for both management and regulatory compliance purposes, but it is confronted with an ever-shrinking IT budget
• A customer service team is faced with having to do the same work with fewer people—it needs faster access to information so that it can resolve more service calls successfully in a shorter time

These are but a few examples of how information management systems can be used to manage tens of thousands to millions of documents, access information quickly for business purposes, and reduce the costs associated with the storage and management of physical or electronic records.

To help analyze the value of information management systems, here are some of the common ways organizations are gaining benefit from them.

Business Workflow and Productivity

Information management systems can help improve a current business process or enhance the productivity of people involved in accomplishing business tasks.

For example, customer service personnel at organizations where information is coming from different silos can have trouble resolving customer queries quickly, accurately, and in a manner that satisfies the customer. The cost of doing this the wrong way can be significant in hard-dollar terms, but perhaps even more damaging can be the harder-to identify problems from frustrated customers who might choose to do business with competing firms.

A new or improved system that requires fewer people to manage can show immediate and tangible cost benefits, as well as offer better call resolution, which can correlate to greater customer loyalty and improved long-term revenues.

Access to Information and Reporting

The recent explosion of data and documents in virtually every organization creates a tremendous opportunity for managers, executives, and even line-of-business personnel to use this data to make better business decisions.

For example, an information management system in the hands of decision-makers who experienced the recent worldwide economic crisis can be helpful in many ways.

Companies can identify areas of significant risk in their business, as well as discover potential opportunities. They can afford to get more frequent updates to make real-time decisions. Executives can identify problem business lines or customers more quickly.

Companies faced with cost-cutting pressures can use information to trim budgets in areas that will have the least impact on the business.

Storage and Long-Term Data Management

To some extent, information management systems can also serve a document management function. Simply converting expensive, legacy media, and organizing it in a manageable, scalable, and accessible electronic data system can offer benefits and help meet various regulatory requirements and best practices for data management.

In addition, using the latest storage management architectures and systems can provide better access to information, and can offer better security and long-term management, such as establishing policies and rules for access of information.

Regulatory Compliance and Legal Risk Management

Control over an organization's information and electronic documents makes plain business sense in all cases, not just for public companies or organizations in more regulated industries like financial services or health care. Good data management policies, processes and systems also move an organization towards compliance with the myriad of regulations that apply to all industries today. This will be particularly important moving forward given the anticipated additional regulatory oversight that we will see in 2009 and beyond.

Implementing best practices and gaining better control over information and documents helps today's businesses lower legal risks and decrease the chances that trade secrets or harmful information will leave the organization.

Each organization and situation will harvest different benefits from an information management system. Thus, it helps to be able to calculate your own ROI from a new information management system. What follows is one way of evaluating a prospective system.

A Formula for ROI for Information Management Systems

The formula for understanding (and then creating more) ROI from your information management system can be a simple one. You generally need to track a few numbers to know how you are doing today, and by understanding the formula you gain the power to calculate the benefits of a new system.

An ROI Model

The formula for ROI from information management systems can be stated as simply:

Value of Information Management Systems - Cost Savings/Annual Investment = ROI

Let's review each of these components in detail. For the purposes of this white paper, simple examples are provided to introduce this concept, at the same time recognizing that your individual situation may be more complex and nuanced.

Value and Speed of Access to Information

Generally, the more quickly that information or reports are delivered to the people who need this content and use it to take a business action, the more value that can be harvested from that information. Also, giving direct access to documents or information to front-line employees (shifting the burden away from an outside service or IT departments) can offer significant benefits, as well

For example, a medical group changed the way it managed its billing, and with its new system was able to cut Accounts Receivable Days Outstanding by an impressive 50%. It calculated the benefit of this component by the cash value of lowering its receivables, which in turn lowered the group's overall financing costs.

Generally, the more quickly that information or reports are delivered to the people who need this content and use it to take a business action, the more value that can be harvested from that information.

This example is a very simple one, but an actionable system that offers insights into problem business areas or customers even 10 days earlier can provide millions of dollars of benefit for many organizations.

Productivity or Workflow Gains

Generally, these gains can be calculated in time savings by employees or by increased client satisfaction and loyalty. Many organizations today are looking to get the same amount of work done with fewer people—an economic necessity that many organizations will face in the coming months.

So, simply taking a process that previously took 10 people to perform and now requires only five people can create a savings of five full-time equivalent employees. If we assume the fully burdened cost of each employee is $50,000, modifying the process can save the organization $250,000 annually.

Risk, Legal, and Regulatory Compliance Value

Legal fees, brand erosion in the marketplace, and fines from regulators that are avoided can easily total in the millions of dollars for organizations each year. To the extent your information management system helps your organization gain these benefits and comply with regulations like Sarbanes Oxley or SEC 17a, you can quantify a value for this benefit.

Storage and Document Management Savings

Management and long-term storage of information can be expensive. So, any new system that converts paper-based systems to electronic ones, or inefficient or costly storage using expensive media or storage systems to efficient and effective ones, can have both immediate and long terms savings.

Calculating Today's Costs and Cost Savings

The value of the new system can also be obtained by calculating the annual savings derived by performing tasks or processes a new way. This means correctly calculating current, as well as new, system investments.

Costs come in many forms. This is where many organizations make a big mistake in evaluating their costs. They include direct costs of any hardware, software, or services used to deliver the information or storage, as well as long-term management costs (applies to both electronic as well as physical documents).

Costs, however, include the time required to manage, access and manipulate information or documents needed. It also includes other costs, such as maintenance and administration of an IT system, which for most organizations is the highest portion of the IT budget. You may count customer service time at $25 an hour while IT, specialists, or outside consultants will generally cost a lot more—$50 to $75 an hour is not uncommon. At a very simple level, if a company uses a service bureau to run weekly reports and no manipulation of the reports or information is needed once received, (highly unlikely), the current annual cost of the IMS would be the amount paid to the service bureau.

Calculating Investment

The ROI formula of a new information management system will include the investment in the system as the denominator over the period of time being examined. For example, if a system with a projected life of five years has a purchase, training and set-up cost of $250,000, ($50,000 per year), and the annual software maintenance, administration, and cost to manage it is $100,000, then one might calculate the yearly investment in that new system (the cost for that new value and the management of the underlying documents) to be $150,000 per year.

Alternatively, if the system is a service-based solution, this may be as simple as the annual service fee and the cost (generally calculated in time) to manage the service provider. So the service provider may have a $50,000 fee and your organization may spend $10,000 in total management time for a total annual investment of $60,000.

While today's organizations are generally looking for immediate return on all investments, one could, for calculation purposes, use a two- or three-year time horizon for this ROI formula.

ROI Formula in Action

Let's review a quick example of how one company used this formula in its business. In this example, we are just looking at a two-year time period. Let's assume that the company needs to consolidate information from disparate systems and run monthly reports to identify problem customers. Let's say it is able to get this information a week earlier each month, which it calculates as having a $1 million annual impact. Further, it gains $100,000 in internal productivity and systems management savings annually with a new system for a total value of $1.1 million over two years.

Also, let's say the cost of the new system is $50,000 annually, or $100,000 over two years. Thus, the annual calculated ROI of the new system would be $550,000 divided by $50,000, or 11 times annual expenditures of the old system.

This artichle is adapted from a white paper provided by Osterman Research Incorporated. To see this and other white papers from them, click here. Reprinted with permission.