The first and arguably most important step of developing a software solution is the decision of whether or not to start at all. This can seem like a bit of a foggy area, particularly if you haven’t ventured into custom development before. But like most good business decisions, it’s about the numbers. The most important question is “what is the return on investment?”
Each Analysis is Unique
A return on investment (or ROI) analysis is uniquely different for each business situation. While many of the factors listed in this article will apply to many businesses, these factors may carry different weight or exist in very different circumstances. There is no “right answer” for everyone. That’s why it is important to have an experienced partner that can look at your particular scenario and provide an analysis that is unique to your business. That said, let’s look at five things to consider when evaluating your project’s return on investment.
1 – How Much Time is Currently Spent?
Think about your current process and determine how much time is spent on the tasks you want to streamline or remove with the custom software solution. Don’t consider only the time spent on the task itself, but also on the ‘adjacent time’. This includes things like the time to switch between tasks, logging out of one software and into another, computer slowdowns or crashes from having several programs open, walking between file cabinets or printers, and manually handling hard copy files.
Distractions should figure into this as well. The longer a process is, the more likely you are to be interrupted or distracted by other things demanding your attention. Research shows it takes an average of 23 minutes to regain focus after a distraction because different parts of your brain are activated every time you switch between tasks. During this time productivity is down and there is an increased chance for errors.
Also consider how much time is spent on duplicate tasks like entering the same data in multiple locations or programs. Many times, those types of things add up just as quickly and can exponentially increase time spent on what seems like a “simple task.”
2 – What is the Cost of Time Currently Spent?
This one is typically a bit easier for us to wrap our heads around. Usually it’s the hourly cost of the employee(s) performing the task. Be sure to include an appropriate percentage to cover taxes and benefits if applicable.
Also consider the cost of errors as mentioned above. When processes are complicated, manual, and/or duplicative, the likelihood of errors increases. This results in a cost of both time and money for the error itself, as well as any additional tasks that now need to be performed to correct the error. Depending on the situation, you may also need to provide customers with discounts or refunds in apology for the error. In highly regulated situations, fines may also be incurred. These all contribute to the cost of the time spent.
3 – What is the Cost of Missed Opportunities?
After you’ve considered the time being spent on the current process, think about the other ways that time could be spent. If the process was more efficient or automated, could you produce more products, make more sales calls, better analyze data, and make better growth decisions for the business? Not being able to do these things means there are missed opportunities – and the money that goes with them. Moving more product means more profit, or being able to land the next big client because you can handle the throughput they require. More sales calls means higher chances of landing more deals. Better data and decision making helps the business grow and become more successful. Carefully consider what opportunities are being sacrificed in service to the current process and put an approximate dollar figure to them.
4 – What is the ROI Time Frame?
Spend some time considering what time frame the ROI needs to be realized within. Should the solution pay for itself within six months, two years, or five years? Generally there is an expectation for the time frame, and that may be determined by budget concerns, outside factors, or even just a gut feeling. This one can be difficult to nail down, particularly if you are new to custom software development. Give it some thought and have some parameters for a time frame, making sure to keep expectations flexible and appropriately aligned with things like the size of the project, the budget, and the implementation needs.
5 – How Can Growth Opportunities Affect the ROI?
Like the previous point, this one requires you to look into your crystal ball and make some guesstimates. Think about what business will be like with the new process and solution in place. Does it free up resources so you can double your client base – and as a result, your profit? This definitely affects an ROI analysis. If the benefits continue to ramp up over a period of time, the ROI can be realized sooner. Or in some cases, it may make sense to go a bit bigger with the project and add other features that will speed up that growth, knowing it can accelerate the realization of the ROI and the success that goes with it.
These are the five areas we touch on in nearly all return on investment analyses. Considering these topics and having a general idea of how each applies to your situation will get things off to a strong start. The better the information provided, the more accurate the ROI for your project. This is incredibly important as our first priority is to provide you with value and help you make the decisions that will lead your business to success. A custom software project is about making the tools fit you and not the other way around. Dorian Solutions is your partner throughout the process, so don’t hesitate to reach out with any questions. Our goal is to get you back to growing your business, and not just running it.