This post was originally published here (TechSoup)
Consider the staff time and other hidden costs to implement it
Some say life’s a gamble. But gambling can be very random, as in the rolling of a die, or very scientific, as in the calculation of odds and percentages. Investing in technology should not be a gamble, in as much as you can predict what it will do for you. In the standard business lingo, we call this prediction “return on investment” or “ROI.” And whether you calculate that with all the vigor of two college students on a weekend trip to Reno, or a scientist who deeply understands the odds, is important. In this article, we’ll discuss the many factors that go into a fully informed determination of the ROI for a technology project.
What Is ROI?
The simplest definition of ROI is that, for any project or purchase, it’s the amount saved or realized minus the cost to invest. If we spend $75 for a new fundraising widget for our website, and we make $125 in donations from it, then our return on investment is $50.
Or maybe not, because we invested in web developer time to deploy the widget to our website and staff time to process the donations. Plus, we spent a portion of each donation on credit card processing fees, right?
Not Strictly a Financial Formula
So ROI is not a strictly financial formula. Actual ROI is based on many factors, including hard-to-quantify things such as organizational culture, training, and readiness for adoption. The benefits of a major tech investment are proportional to the readiness of your particular organization.
Let’s try another example. We’ll spend $2,000 to upgrade to a new version of our fundraising system. It boasts better reporting and data visualizations, which, per the salesperson, will allow us to increase our donations by 10 percent. We think we’ll make $10,000 a year in additional donations, and expect the upgrade to benefit us for two years. So the strictly financial return is $18,000 ($20,000 new revenue – $2,000 upgrade cost).
But that 10 percent increase isn’t based solely on having the new features available in the product; it’s based on using the new features strategically, which your staff might not know how to do. It assumes that the software will be configured correctly, which assumes you are fully cognizant of your needs and processes related to the information that the system will manage. And it assumes that you have a staffing level that might be larger than you can afford.
It Doesn’t Start with Dollars
The concept here is pretty simple: it is easier to bake a cake from a recipe if you buy the ingredients beforehand. Then you need to have all of the required mixing implements and receptacles, clear the necessary counter space, and know how to turn on the oven.
Similarly, successfully calculating the return on investments requires having a complete picture of what you will be investing in.
Ask Yourself These Four Questions
- Do I understand what improvement this investment will result in and/or the problems it will solve?
Core to measuring the return on the investment is knowing what it is that you have to measure. That will be some quantifiable amount of anticipated revenue, productivity gain, staffing reduction, or increase in clients served. You should know what those metrics are at the start of a project.
- Have I thoroughly considered the staffing changes that this investment might enable or require?
For any large investment, like a new fundraising database or constituent management system, or a new, complex initiative, you want to know upfront how your day-to-day operations will be impacted. A new system might automate laborious processes, allowing you to repurpose staff. Or it might well require additional staffing in order to maximize the return. Those costs or savings are a key factor in the ROI.
- Do I have the necessary buy-in from the board, executives, and staff that will result in a successful implementation?
Key to any large project’s success is having the support from the key decision makers. If you’re in middle management, and your initiative is not well understood and appreciated by those in charge, then there’s a significant chance that the project will fail. As right as you might be that your organization would benefit, again, the return on investment requires that the organization is invested.
- Have I identified any required training and ensured that we have the resources to provide it and the time to take it?
So much of the value in a new system is derived from people knowing how to use it. In resource-strapped nonprofits, training time is often seen as frivolous or less important than whatever the crisis du jour might be. Don’t let that happen, because what you get out of a system is all contingent on being able to use it well and strategically. Without training, people will tend to try and emulate what they did before the new system was in place, and that will more likely reduce your return than produce it.