Cost/benefit analysis for implementing ECM, BPM systems: determining the ROI for a significant investment, such as adopting an ECM or BPM system, is no easy task.

The adoption of enterprise content management (ECM) and business process management (BPM) systems is often spurred by regulatory and compliance concerns. As Thomas Hogan, Vignette president and chief executive officer, told Computerworld, the move to adopt ECM technology is driven by "two fundamental business catalysts":

1. How to render more value in terms of greater revenues or stronger loyalty

2. The need to understand how information flows within the enterprise because of compliance requirements

While these concerns underlie the value-driven justifications for the adoption of ECM and BPM technologies, they do not address the financial impact of their implementation.

[ILLUSTRATION OMITTED]

Executives who understand the level of investment involved with implementing ECM or BPM systems focus significant attention on their potential return on investment (ROI). This is especially the case in the initial implementation of such technologies, specifically in labor- and process-intensive applications. For some decision-makers, ROI is assumed, while for others, it is measured prior to system selection and acquisition. For the most sophisticated enterprises, ROI assumptions and projections are measured again after system implementation. Whatever the circumstance, evaluating the ROI between a digital and either a paper- or microfilm-based environment is an exercise worth pursuing prior to making an initial investment.

Developing effective ROI models should include the impact of implementing such solutions on both costs and revenues. While it may be challenging to project the revenue impact, systems that enhance an organization's ability to provide improved customer service or that enable it to manage increased numbers of customer transactions are those that are likely to have the highest return. Certainly, for financial services organizations like banks, insurance companies, and mortgage lenders, gaining competitive advantage and increasing revenues often are key factors in deciding to move forward with ECM or BPM solutions.

Cost factors involve both operational and capital expenses. Cost comparisons should span all costs, including for

* Employees

* Space

* Copying and media

* Supplies

* Information routing or distribution

* Equipment

* Communications

If they are to be considered verifiable and trustworthy, each category of costs should be traceable to the organization's overall budget and should not exceed budget line items.

Revenue projections are more challenging to develop, but where the potential impact on increasing an organization's capacity to do business is concerned, such revenue estimates can be a very real factor in an ROI model.

Comparative Cost Data

In order to evaluate cost factors, the following should be included in any comparison:

* Key Corporate Data: Understanding an organization's key statistical information is important for determining how attractive an investment might be. Understanding the burden rate (the benefit rate that can be applied to employee salaries), projecting an inflation rate, knowing the organization's tax rate (federal and any applicable state tax), and understanding an organization's investment interest rate (what the firm could receive by investing the same funds elsewhere), as well as the firm's specific method of calculating the rate of return on an investment, can be critical.

* Employee Costs: Include full documentation for job rifles, fully burdened hourly costs, and determination of the total full-time employees involved in the process or area being measured. Projected productivity savings must be included, as well as the costs associated with ECM or BPM systems support and administration. Document capture support and administration should also be fully quantified. To ensure relevance over time, these comparative costs should be summarized over a three- or five-year time span and should include any assumed inflation rates and transaction or file growth factors.

* Process Time Statistics: Whether it involves human resource, accounting, or any other type of record, processing is involved. Gathering information regarding the time required to process, issue, or pay an invoice, approve a permit, or process a customer order will be relevant for establishing how an ECM or BPM system can help expand the organization's capacity to manage greater numbers of transactions without expanding its staff size.

* File Space Savings: How much space an electronic system can save may also play a role in determining its overall ROI. Calculate how much space is required in primary offices and in any secondary storage locations, as well as the costs associated with offsite storage. In some cases, it may be necessary to include any "permanent out-file" costs to ensure that the cost comparison is complete.

* Copy Cost Savings: If comparisons are being drawn to either paper- or microfilm-based solutions, incorporate copy cost savings into the comparison. It is important to include any copying costs that may be reduced or eliminated, but also to avoid underestimating the potential copying costs associated with the implementation of the ECM or BPM system.

* Supply Savings: Depending on the environment and the sophistication of paper-based solutions, compare the supply costs for each system. Include file folder, pre-printed forms, paper, and other file-room supplies.

* Microfilm/Microfiche or Other Repository Savings: In some cases, ECM or BPM solutions may be replacing the use of microfilm or microfiche as at least one source (repository) of information. The costs for generating microfilm or microfiche should be accounted for, as should any equipment and supplies associated with the use of such systems. If there is a plan to convert any electronic repositories to a new ECM or BPM repository, then costs for maintaining the existing repository and the cost of conversion must be included in order to provide an accurate determination of ROI.

* Information Routing and Distribution: In those organizations that have multiple repositories of information--paper, microfilm, or electronic- that are designed to serve a geographically dispersed organization, the centralized management of content offered by ECM or BPM solutions may offer cost savings. Mailing and/or courier costs should be evaluated in such cases. As an example, one state's courier fees for the transfer of child support case files exceeded $1 million per year.

* Communications Costs: When responding to inquiries that require the retrieval of records, communications costs can be an important point of comparison. Wherever a new system can eliminate the need for telephone calls to be returned or for manually sending foxes, cost savings can he achieved. A comparison of existing versus projected communications costs should be made part of the cost comparison. In a highly active environment, the communications costs can be substantial and, likewise, the potential for cost savings can be significant.

* Office Relocation Costs: In some cases, office locations may be changed, or scheduled for future change, based upon the expiration of leases, the need for additional space, or other factors. Thus, those office relocation costs that can be anticipated can also be captured in the ROI analysis.

* Equipment Savings: All offices require some equipment in order to function. The comparison may incorporate ongoing increases for filing equipment, fax machines, computer hardware, and office cubicles. Current costs should be captured, as should the projected costs for any new ECM or BPM system.

* Other Financial Costs: Other costs may be a challenge to fully quantify, but often there are specific or demonstrable costs that are associated with lost or misplaced files, reconstruction of files (wherever that can be accomplished), compliance, or penalties associated with the lack of timely access to records.

Statistical information from a variety of external sources may prove helpful in documenting such costs, but be wary of using such generalities--assumptions regarding out-of-file or misfile percentages and the projected costs for locating or losing such files can prove treacherous. For example, making an assumption that a misplaced or lost file costs $120 per file, or $60 per file, and that 6 percent of all files may be lost or out-of-file can result in misleading ROI conclusions and undermine the credibility of the projected return, particularly if such numbers result in costs that exceed the organization's current budget.

Also, for areas that deal with accounts-receivable records, the inclusion of any write-offs or allowances for bad debts should he captured. Any lost discounts or overpayments associated with accounts-payable operations may be captured as well. Other financial costs might include the lost time associated with activities that must be postponed due to the unavailability of information. Typically, these costs are more challenging to flatly document because evidence of those costs may be anecdotal in nature. However, they can contribute to a valid cost comparison and thus are worthy of additional investigation.