.FLYINGHEAD KEEPING SCORE ON MOBILE SOLUTIONS
.TITLE Mobile ROI Boot camp
.AUTHOR Dale Troppito and Dawna Paton
.SUMMARY This week, we continue our popular Total Cost of Ownership series from Dale and Dawna with an introduction to the issues of cost when looking at mobile solutions. If you’re investing in mobile tech, you owe it to yourself (and your company) to devour this article!
.DEPT
With mobile solution TCO (Total Cost of Ownership) under your belt from the last two month’s columns, it’s time to continue our journey through the mobile solution value chain. Thus far, we have concentrated solely on how much you are spending (or not spending) to keep your mobile enterprise solution fully functional with a fully enabled user community. Now we’re ready to make the leap from costs, or investment, to the consideration of benefits.
.H1 Mastering the lingo
We might as well get this over with at the get-go. We know it’s dry stuff, but let’s just plow through it. Knowing the lingo makes what’s to come that much easier to digest. This standard terminology is universal, and applies to any type of business initiative assessment — whether a technology purchase, a new service launch, an outsourced business process, or a mobile enterprise solution.
While the mathematics behind ROI (Return on Investment) is seemingly straightforward, there’s nothing simple about identifying all the different ways that costs and revenues are recognized within an enterprise. Cost savings can arise out of a myriad of categories peculiar to the business application, customer’s industry — or both.
Costs can be one-time, or ongoing. Increased revenues can issue from existing customers, and from new business (from new products, greater market share or new markets). And finally, all of these categories have both tangible and intangible components.
ROI (Return on Investment) is a financial term for the economic gain directly associated with a particular capital outlay. It’s a calculation of how much money comes back (or is not spent) for every dollar invested. Essentially, ROI is nothing more than the sum of all the cash flows associated with a specific project or initiative, over some period of time. Simply stated:
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Dollar ROI = Total Benefit – Total Investment
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ROI is meaningful only when considered within a defined time period. An 800% ROI may be staggering for some industries if it can be achieved in 6 month, but unacceptable if it takes 24 months.
.BREAK_EMAIL Head on over here to pick up the rest of the ROI lingo and learn more.
Selecting the time period to be modeled is the first step in your ROI model planning. In the world of IT — and mobile solutions — a 3-year ROI view is most common. An ROI Scorecard typically profiles ROI based upon data prior to technology deployment, as compared with the same business metrics 12 months, 24 months, and 36 months following deployment.
Total Benefits are the set of value drivers, each of which brings a discrete, positive, bottom line business impact to your company. ROI value drivers should connect directly to the bottom line and measure hard, not soft, ROI.
Soft ROI, such as "increases employee productivity by 20%" does not have a direct connection to the bottom line. Hard ROI tells you just how that 20% productivity increase translates to a measurable economic return such as realized cost savings or revenue increase.
There are four basic flavors of value drivers to consider.
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.BULLET Increased Revenues are sales directly attributable to the technology deployment. Such increases can be derived from increased sales leads, higher sales close rates, shortened sales cycles, higher repeat sales, increased billable hours, etc.
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.BULLET Reduced/Avoided Costs are derived from savings associated with reduced outsourcing requirements and lower administrative costs that are the direct result of the application deployment. A caution: labor reductions that do not result in staff eliminations should not be counted, as the affected employees are simply redeployed within the organization. Some business costs can be eliminated all together. For example, costs such as elimination of staff, shipping, printing, transportation costs, and other components of the business workflow resulting from the mobile solution deployment.
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.BULLET Decreased Risk/Liability are concrete costs that are avoided because the mobile solution keeps certain business situations from happening. For example, a mobile solution for facility managers that assesses building environment and health hazard compliance can help the enterprise reduce workforce liability and related legal action.
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.BULLET Increased Business Opportunity calculates new revenue sources that are exclusively born out of the technology solution. For example, a mobile solution that captures and analyzes field data may reveal new strategic directions for the enterprise’s products and services.
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Total Investment is just another way of expressing TCO (Total Cost of Ownership). You already know this one! TCO is a vital ingredient to any rigorous ROI calculation. After all, you want to know what the economic benefits are AFTER you subtract off what you’ve sunk into the solution deployment.
Percent ROI is another way to express the financial return. When you see an ROI expressed as a percentage, this is simply the following ratio:
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(Total Benefits – Total Investment) / Total Investment
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Warning: Do NOT assume that the ROI% is equal to the benefits divided by only initial costs. You should only assume this if there are no ongoing costs. Usually a technology purchase has associated ongoing costs that offset ongoing benefits, hopefully not to their exclusion.
Payback Period is an important metric since it computes the time period required, beginning at the time of investment in your offering, for you to recoup the invested dollars as a direct benefit of mobile solution deployment. It tells you how much time will go by from the time your company paid out the capital, to when you can recapture benefits that equal that investment amount — or break even.
Some companies use a start date of solution deployment, but this doesn’t take into account the amount of planning and pre-installation work that usually needs to be done prior to installation of the mobile solution. The costs of employee training, installation and testing should also be considered as a factor. A project that takes 12 months to go live will not have a payback period that is less than one year.
NPV (Net Present Value) is a financial term for the value of a series of yearly cash flows, discounted back to today’s dollars, by removing the effects of inflation. NPV is useful when calculating ROI, as it can be applied to the net yearly benefits associated with your offering.
Ok, that’s it! The pain has subsided. Now let’s talk about how to approach ROI assessments.
.H1 Handhelds are chameleons
There is no standard, off-the-shelf, ROI calculator for a "mobile solution". It’s simply not feasible and, if such a tool does exist, it can’t possibly be accurate. While the cost drivers that comprise the investment side of a mobile solution are consistent, the benefit drivers of the mobile solution are completely dictated by the type of mobile solution and the industry that’s using it. One size does not fit all!
Let’s look at a couple of examples to illustrate this point. First, let’s look at a retailer that’s invested in a mobile solution to improve inventory and fulfillment management. Every member of the inventory and fulfillment team is now equipped with an RFID (Radio Frequency Identification)-enabled handheld. Here are some of the possible benefits to examine:
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.BULLET More inventory turns per year, leading to less cash tied up in inventory capital. This could lead to lower interest paid out on money borrowed, or greater interest earned on invested funds — funds that are in the bank and not tied up in physical goods in the warehouse.
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.BULLET Better inventory accuracy and increased inventory turns also mean the enterprise can plan better. There’s a lower risk of being stuck with obsolete goods that need to be written off. In turn, better planning also enables enterprises to purchase more strategically to leverage vendor pricing and get the best terms.
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.BULLET Thanks to the integrated RFID capability, the fulfillment staff can quickly find goods and fulfill orders. More goods ship monthly, and there’s more revenue.
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.BULLET Fulfillment and shipment errors decline. The enterprise sees a decrease in order returns. The business grows, but the customer service staffing growth is stayed because there are simply less problems to deal with. The cost of processing return shipments is almost entirely avoided.
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.BULLET And because orders are fulfilled quicker and more accurately, customers are happier doing business with the enterprise. There is direct up-tick in repeat sales.
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Now let’s look at another mobile solution.
An enterprise of manufactured goods deploys handhelds to its entire driver fleet, each configured with a mobile printer. Now, at time of delivery, the driver whips out the handheld to validate credit card and check payments. Purchase orders are processed at the time of delivery, with invoices and customer receipts being printed in the cab of the truck.
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Corporate headquarters is sent the signed paperwork that documents acceptance of goods, with payment instructions. The financial transaction is completed at time of delivery and both parties have a complete set of paperwork on the business transaction. The enterprise recognizes the following benefits:
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.BULLET The accounts receivable cycle improves dramatically and so does cash flow. The lag time now between delivery and receipt of payment information is minimal.
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.BULLET Delivery and payment information is all entered directly into the handheld. Shipping, delivery and payment errors drop. The company grows, but is able to do so without adding staff to its accounts receivable department. Administrative costs associated with re-entering delivery and payment data into the central repository are avoided.
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.BULLET Because all paperwork is transacted at the time of delivery, shipment costs of signed paperwork to corporate and the customer are avoided.
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.BULLET No lost or illegible proof of delivery. By automating paper bills of lading and delivery receipts, all orders can be tracked. When deliver paperwork is lost or illegible, delivery shortfalls and freight claims mean revenue write-offs. Eliminating the manual process results in more captured revenues.
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As you can see, these two completely different mobile solutions bring completely different benefits to the enterprise. And because of this difference, it’s really difficult to have a rational discussion about mobile solution ROI in general without bringing some additional focus and granularity to the table.
.H1 Putting theory into practice
In future columns, we’re going to dedicate our value examinations to specific mobile solutions and how these solutions play out in the different industries that are adopting them today. Each column will inventory the benefits buffet table. So if you’re considering a mobile solution for your company, but aren’t sure about how to keep score on the investment you’re contemplating, we want to hear from you!
Mobile solutions are being used in field service, sales forces, construction site management, law enforcement, and building assessments. In fact, local government has even deployed handhelds to town dog officers! Mobile solutions are revolutionizing healthcare with mobile rounds, provider charge capture, and patient home health monitoring.
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Handhelds and RFID are redefining inventory management and fulfillment. The mobile solution list is long, and growing at an exponential rate. We build to suit. So you decide the order in which we investigate mobile solution ROI.
While we thoroughly enjoy pontificating on our personally selected topics regarding Mobile Enterprise Solutions, we’d like to establish an interactive relationship with you, our reading audience. Monologues are not us! We’d like to invite you to send your questions, opinions and topic suggestions on mobile enterprise solution value delivery to dtroppito@computingunplugged.com. We’ll do our very best to respond expeditiously in our upcoming columns. Looking forward to hearing from you!
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