The calculations we looked at yesterday showed clearly that ROI is not necessarily an immediate thing - with technology, the ROI is sometimes not realised until year 2 or beyond. Can your organisation manage this negative impact on cash flow whilst you are waiting for the benefits to take effect?

Many companies look to banks to fund large investment knowing the ROI is a future thing and they need to manage cash flow utnil they see these benefits. At Saratoga we offer rental agreements with one of the main reasons being to allow clients to offset the negative cash flow impact of technology projects. The overall cost increases as we have to cover the additional risk to us and the time value of future revenue. What we have found though is that many people do not look at the proposal in this way. They have a desire to purchase outright rather than spread the costs. We know there are some reasons people may do this and maybe we’re not communicating the benefits fully, but we have always believed the cash flow issues and associated speed of ROI would persuade a reasonable number of clients to opt for rental agreements. Have we misjudged what people want?

What if we package all the products and services you need in to a monthly rental - the Managaed Service apparoach? This would give a business owner/manager a fixed monthly fee based on number of workstations required (directly related to number of staff) for all their IT needs. Thsi immediately allows the employer to either measure the ROI on this investment easily or to set the costs as a cost of employment as it is related to employee numbers. This also ties in with the move to Software As A Service (SAS) - where monthly fees are paid for access to software rather than buying licenses ouright. How attractive is a fully managed service package to an SME - particularly with an eye to ensuring a quick and significant ROI?

What does this mean for Bournemouth, it’s residents and it’s businesses?

There are plenty of places where you can read the about the details of this story:
IT Week
PC Advisor
Silicon.com
PC Magazine UK
MSN UK News
BBC News

There are more. If nothing else this story will go some way to putting Bournemouth on the map for technology and Internet innovation.

What does it mean in practice though?
100Mbps matches the speeds you can achieve in many office networks and therefore starts to make many online services far more attractive and useable. Broadband has already opened up many opportunities to home users and this development will improve that vastly.
There is a move already to provide software as a service - see Google Apps as an example - and these speeds would make it far more practical (and definitely less frustrating!!) to use these freely available products.
Many people are using online back up services to back up their data. Again, moving to high speed connections will greatly improve the performance of such services and they will become almost equal in terms of speed and performance compared to locally installed software.
What about video and audio files. These account for the vast majority of Internet downloads. Is it going to become feasible to watch a movie streamed across the Internet without having to download the entire film first? This would open up a whole new world for pay on demand TV and films.

The advantages for home users are obvious. What about businesses? These may not be as obvious at first, but the benefits are definitely there;
Voice over IP (VoIP). This technology is being used by many businesses and is being trumpeted as the next thing in business telecoms. Basically it allows you to make telephone calls across the Internet and can save significant amounts of money in telephone call charges. So far, there has been a reluctance as some calls suffer in terms of quality due to bandwidth restrictions. These new superfast lines could change all of that, making VoIP far more acceptable to businesses.
Many business Web sites now have video embedded in them in a move to add some personality. These new lines with their increased bandwidth would make it even easier for users to view these Web sites and the videos contained in them. This opens up opportunities for businesses in how they communicate with visitors and the services and products they offer via the Internet.
What about software as a service too? There’s no reason why businesses could not tap into these low cost, reliable services if the bandwidth available to them is large enough.

There are many opportunities made available by having larger bandwidth and I think it is great this trial is happening in Bournemouth. We’ll be watching developments very closely.

Yesterday we discussed the concept of knowing the expected return on investment (ROI) before making a purchasing decision for new IT equipment, software or services. Those of you that want to use this model for making purchasing decisions, can use a calculator we found on the Microsoft Office Web site.
It is only intended as a guide: it includes most of the costs/benefits we can think of, but may need to be adjusted to fit your unique circumstances.

A guide to help you use the calculator:
Increased Revenue: This should include all the additional income you expect from using the proposed technology. For example; if you are planning a new e-commerce Web site then you expect a significant increase in revenue directly from this technology investment. Try to factor in any additional income you would expect from having an edge over competitors, improving client satisfaction and therefore increasing referral rates, etc. Be realistic about when these revenues will be coming into your business.
Reduced Costs: If this is going to streamline a process you can easily show the reduced costs here. Do not forget though that many technology investments are designed to improve efficiencies and productivity, so you may well be able to show costs savings per unit. If the technology is going to reduce energy costs or storage costs, etc show those savings here. It may be that you are planning to use an electronic document management and storage system and will be able to reduce printing and storage costs.
Avoided Costs: This is probably the trickiest: how do you know what costs you have avoided? If you are experiencing delays and down-time with old technology try to figure out the cost of the idle time you are going to avoid through your investment. You may also want to factor an element of potential future costs should you not make the technology investment. For example; how much would it cost you if you experienced some significant data loss? Do not include all of this as there is only a probability that it will happen to you, but it would be wise to include a portion if this is part of the reason for considering the technology investment.

The spreadsheet then works out quarterly totals and cumulative totals for these items. These figures represent the fiancial benefits of the proposed technology investment.

One-time investment: This is how much it is going to cost you to purchase the proposed technology - your capital outlay. If you are able to spread the cost through rentals then this could be zero.
Ongoing Investment: This is the ongoing cost incurred directly as a result of having the technology in place. This would include such items as power (only if this is going to be additional - NOT replacing an existing cost), support, updates and upgrades and so on. The one item many people forget is training. If you are going to need to train staff to use the new technology then you must factor in this cost.

This section then calculates quarterly and cumulative totals for the investment required.

The bottom section goes onto combine the two previous sections. The example in the spreadsheet shows a negative ROI in the first quarter, but by the end of the first year this becomes a positive ROI. you may need to extend the chart to cover an extended period if you believe the life of the technology is longer than 1 year. You will then see clearly when you can expect to ‘breakeven’ and what ROI you can expect in future months/years.

Armed with this information you can then make the right decision about the propsoed technology investment.

If your supplier makes certain promises about savings and/or returns then I would suggest you build these into any agreement you sign. If you make a decision based on information they provide and this information turns out to be wrong who should bear the cost of that? I would suggest that asking a supplier to make a financial commitment to back up their claims will ensure they are more realistic about what their products and services can actually do.

If your supplier is unwilling to make such a commitment, give us a call to see what we can do for you!

If you’re running your organisation effectively and managing budgets efficiently this is a question you will no doubt ask whenever you get some marketing information about the latest techonolgy development or you get a call from your IT account manager. If you don’t ask this question AND find an answer how can you make an informed decision about how to spend your organisation’s hard earned money???

Maybe you allow yourself to be persuaded by the sales pitch. If this is a good one, they will listen to you and then explain how the product will benefit your organisation. How often does a sales pitch focus on ROI? Does anything else matter? If you’re a charity, a school or another organisation where you do not have to make money then you may well have a focus other than ROI. But if you run a business how can you spend money on anything that isn’t going to do one of the following;
1. Improve your bottom line (make money)?
2. Improve your top line (reduce costs)?
3. Improve efficiencies (increase how hard your money works for you)?
4. Avoid potential future costs (protect against potentially damaging incidents - eg data loss)
5. Improve cashflow?
These are reasonably tangible, but there are other factors that could affect the ROI;
6. Will the technology give you an edge over your competitors and allow you to potentially increase market share?
7. Will the technology improve the quality of what you do and/or the quality of the customer service you provide?
8. Will the technology allow you to market your products more effectively?
These are not always measurable factors, but they can be very real and should form part of any ROI calculation. The problem is; what value do you assign to the factors?
There may also be factors that are specific to your industry or even to your organisation.

You will also need to decide the lifespan of the equipment. Is it 3 years? If so, you should look at the impact of all the factors over this period against your initial cost and ongoing costs.

As this question is unwrapped, you can start to see how complex finding an answer actualy is.

How important is it to you that your IT supplier helps you understand the ROI you can expect from the investment they are aksing you to make?
In what format would you want to see this?
Should it be part of the proposal stage so you can see the investment required compared to the expected ROI before you make a financial commitment. Or should it be even earlier than this and be part of the initial discussion? Do you need a proposal if you are not convinced there is a real potential of getting a significant ROI?

Is ROI actually as important as we think it is or are we barking up the wrong tree?