Time is Money: One Method to Measure a Software System’s Return on Investment

When you start looking into investing in any new product or service the question of whether or not you will see a return on investment or ROI will come up in conversation usually with the finance person or your boss.  It can be a difficult question to answer if you are not prepared.  Before we get into any formulas to figure out the ROI it might be good to define the term.  Wikipedia defines Return on Investment (ROI) is the benefit to an investor resulting from an investment of some resource. A high ROI means the investment gains compare favorably to investment cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments.  In purely economic terms, it is one way of considering profits in relation to capital invested.  Obviously, you want a positive ROI which means your decision to buy that product or service has paid off. Ideally as you continue to use the product you would like to see the return come back over and over again building up your revenue stream.

Well, now that we know what an ROI is how the heck do you project whether your investment will bring a high, low or no ROI?  As the saying goes, “time is money.”  For software, the basic premise is that the time connected to the administrative workload should decrease significantly since the processes will be managed by software thereby freeing you up to focus on other priorities.  How do you go about tracking time spent on your work activities?  You could make a guesstimate, but it might not be as accurate.  One idea is to create an old fashioned spreadsheet listing out a full work week (Monday – Friday).  Add column titles like activity, start time, end time and total time.  Before starting any tasks or activities go to your handy dandy spreadsheet and mark it down including the time it was started.  For example, maybe you create contracts for your customers by hand.  Include the activity name as “contract” and add the start time and end time in the corresponding columns.  The last column should show the total time spent on this one particular task ie start time 2PM, end time 3pm, and total time 1 hour.

After filling in your spreadsheet for an entire week you will start to see patterns on the spreadsheet and sections of your work day where you spend most of your time.  For any tasks that can be automated or streamlined by a software system such as contracting, scheduling, invoicing and reporting (which is usually the one activity that can take up the most time and brainpower) make a note of it or highlight it with a different color.  Finally, add up all the sections that you have identified or highlighted that could be automated and take that amount times your hourly wage.  This will give you a total amount of time and money it takes to complete those pesky manual administrative tasks.  I would take the total for the week and multiply it by 4 weeks to get a monthly figure and multiply that by 12 months to see an entire year.  I bet you will discover that anywhere from 20% to 35% or more of your time is spent doing busy, administrative work.  Time that could be easily recouped if you had a system that is able to automate these activities.  Time better spent on chasing new business opportunities or tending to your customers’ needs.

What is the point of doing this exercise?  Well here are a few reasons why this is worthwhile:

1. The information collected can be used as justification that investing in a new product or service is fiscally responsible and not doing anything is fiscally irresponsible
2. It enables the finance department to ensure the organization is getting value for their money
3. You can accurately measure the success of failure of a project with this information

We have proven the theory that time is money and now that you know how to measure it you can leverage this information to secure a new software system that will not only make your working life simpler, but also help you achieve your business goals to increase revenue this year.   The rock band Pink Floyd seems to have encapsulated the idea in their song Time. Imagine you are sitting at your desk, their song comes on and right at the top the song starts:

• Ticking away the moments that make up a dull day
• Fritter and waste the hours in an offhand way.
• Kicking around on a piece of ground in your home town
• Waiting for someone or something to show you the way.

Well consider this blog posting your sign that shows you the way to a better use of your time and spaces.