How to determine your tech ROI: A guide to building your business case for new technology

When employees need to use a growing list of time-consuming workarounds to accomplish everyday tasks, you know your technology is outdated.

But even when it’s obvious that changes need to be made, it’s not always easy to get the buy-in you need, especially from the uppermost levels.

Overall, a strong execution plan and a business case that presents a hard ROI model on your technology are much more likely to see success and momentum.

1. Develop an effective execution plan

There are three keys to developing an effective execution plan that builds a better business case for new technology.

Select your technology wisely: The technology you choose will have a huge impact on your people and your future capabilities. If the technology you want to implement was developed by a startup, consider that it might make hiring harder for you if you’re looking for people with specific experience with that technology. Many hundreds of thousands of people might be certified in well-established technology compared to that of startup systems, so your hiring pool is wider if you choose a more established software vendor.

Also, look at how big its R&D budget is. Microsoft, Salesforce and Sage spend millions each year on R&D to advance their product capabilities and to be ahead of the curve — while other solutions may be in the waning years of their life cycle and have little to no spend as they are merely collecting their licensing fees until the sunset of the platform.

Create your road map: Develop a technology road map that identifies your true requirements and discovers what you need to get there. You should be zooming out at least two to three years. Understand what’s going to come next and those critical orders of operation so you can prioritize what your organization needs immediately versus the long term.

Define your team structure and operating model: Design this for the long term to reflect your digitally transforming or transformed organization. You’ll want to account for the fact that the time you’re asking people to spend on digital transformation up front isn’t necessarily going to be time they’ll get back in the future, as digital transformation is a process of revaluation, optimization and innovation to help ensure your business stays aligned with client experience expectations and demands. Your team structure and operating model should reflect this.

Identify the impact on your clients: Consumers buy from organizations that let them press the easy button — whether this is in the buying cycle, throughout the delivery of the service/product or while supporting them down the road when the dust has settled. Amazon is fast and easy and often the first place you go to when you want to buy something. Your execution plan should identify how to make your clients’ lives easier — whether it’s giving them one source of truth or making processes faster and easier.

2. Build a business case to get buy-in

Getting the buy-in and budget you need is all about building a business case — and doing so the right way. Here are some tips:

Understand who makes capital allocation decisions: Who’s making the investment decisions in your business? Is it senior leadership? The board of directors? Some combination? Once you understand who to go to, you’ll want to understand the right process as well, which leads into the next tip.

Deliver your business case in the format they are used to or want to see: Because your senior leaders or board of directors are constantly making investment decisions, they rely on the CFO to normalize the costs involved (e.g., hiring, risks, financing, big purchases, hidden costs, outlay of costs, etc.) into one consistent format.

Once you understand which terms and what format your company uses, your business case can match it so your leadership can better understand what you’re asking for and how that ask will impact the organization. Note, too, that ROI is usually looked at in terms of net present value or internal rate of return, so you’ll want to use the KPI that is used by and resonates most with leadership.

Provide hard numbers: Let leadership know the level of investment required. What’s the total investment for each year for the next five years? What are the necessary one-time investments versus the ongoing investments in services and software? And what’s the expected return on investment?

3. Determine your ROI

At its simplest, ROI is determined by subtracting the costs of the investment from its determined benefits in some number of future years.

But not every organization uses ROI. CFOs have a variety of opinions and preferences in this area, and many prefer to use internal rate of return (IRR) or net present value (NPV) instead. This is based on the crucial factor around the timing of the returns. IRR and NPV models will visualize this relative to your cost of capital.

But what goes into determining the benefits, and what are the costs you need to consider? Here are a few to consider:

Value to consider in ROI: When it comes to value, a project has both direct and indirect benefits.

Direct benefit examples:

• Increased revenue
• More efficient workflows that allow for more project capacity with the same headcount
• Earlier project completion and reduction in rework on projects
• Improved efficiencies within your organization
• Standardized processes that allow for scalability nationwide
• Elimination of cost around maintaining legacy systems and hardware

Indirect benefit examples:

• Higher client satisfaction due to more efficient workflows and a more collaborative space
• Improved morale of your workforce
• A more innovative culture leading to a continued flow of ideas and improvements that lead to direct benefits

A project also has costs and risks to factor into your ROI calculation.

• Direct costs: Examples include hardware, software licensing, implementation consulting, integration consulting, training and change management
• Indirect costs: Perhaps the best example of an indirect cost is the short-term impact to productivity for your internal workforce as they devote time to the technology implementation while still performing their normal day-to-day work.
• Potential risks: Examples include budget overrun and the project taking longer than anticipated.

Thinking through the lifespan of your investment

Picking a toolset that will take an excessive amount of time to realize benefits is one thing that can kill your IRR. Picking a platform that might have a shorter lifespan than you need can also kill IRR. This is why it’s so essential to pick the right platform and partner. Your partner drives time to value, while your platform determines how long you see returns.

Also consider that it just isn’t possible to earn the same return on software 20 years from implementing it as it is in the first 10 years.

So how do you think through the lifespan of your investment?

Moving from on-premises to cloud-based solutions, as well as picking a platform that is gaining traction in the market and being developed by a healthy and growing software publisher, should give you assurance that you’ll get at least 10 years out of your investment before you need to consider replacing it with an updated solution.

Larger publishers with millions or even billions in annual R&D budgets help extend the life of your software, as they’re developing and pushing updates to your systems. These updates not only keep it on the leading edge but also make it more valuable to your organization in year five than it was in year one.

How Wipfli can help

Wipfli’s strategists and technologists are ready to partner with you to maximize the return on your tech investment with the right strategy, data and solutions.