Return on Investment is something that every one of our clients intimately understands. Simply stated, it is a performance measure used to evaluate the efficiency of an investment. The return on investment formula is also easy to understand:
This particular business metric is popular because of its versatility and simplicity. By looking at the formula, it appears that only two variables are required to calculate the ROI. However, calculating return on the investment of Technology can be elusive if you don’t have a clear understanding of what you “Gain” from your investment in technology.
The use of information technology is an integral part of enterprise management and operations. Investment in information technology helps enterprises stay on the cutting edge of new technology to achieve better financial results. Those results can be in cost savings, increased revenue/earnings, or a combination of the two. Investments in information technology can also provide certain intangible benefits such as improved customer care, increased time efficiency, and better coordinated record keeping within an organization.
This means that the “Gain” part of the equation is broken down as both tangible and intangible. Calculating the ROI in technology requires two different approaches.
The tangible “Gain” is defined above as the percent of earnings generated from the investment to the total cost of the investment. That is easy with a singular investment such as an installment loan, lease, or zero coupon bond. However, technology is not a singular investment. It typically requires a continual investment, and therefore one must look at both the “Collective ROI” and the “Non-financial ROI”.
When the ROI concept is not referred only to measuring earnings over investment cost, ROI collectively represents a group of metrics that can analyze the cost and benefit of an investment from other perspectives, such as using a measure of payback period. In technology investments, potential monetary benefits may not show up immediately. An analysis of payback period will show how long it takes to recover the investment from future returns. To calculate payback period, aggregate earnings in future years until the year when the sum has equaled the total amount of investment and the period through the last year is the investment's payback period.
The non-financial ROI is a broadly defined term that does not denote any quantitative measure. Applying non-financial ROI is particularly useful in analyzing information technology investments because of the many non-monetary returns from any tech spending. Some of the intangible benefits may translate into quantifiable earnings at some point, but together they become part of an organization's better infrastructure. For example, a loan origination system enables employees and departments to more effectively manage their job responsibilities, thereby processing more business with fewer FTEs giving better service to partners and to customers. In the long term, better and more dependable service means more business for your company.
For those of you who have a good handle on your metrics, we will be happy to put a custom ROI analysis together for you. Please contact us for additional information.
Here are comments from Vision Clients. We have many more references upon request.
“Vision has allowed us to fully automate our process from application origination to funding. With the efficiency Vision brings to the company, ILS has increased revenue by 34% without adding a single employee.”
- Andrew Nere
Innovative Leasing Services
"The staff of Vision Commerce took both pride and ownership in not just understanding our business, but effectively and professionally changing the way we do business in so many ways. Because of that attention, the Vision origination system has given us incredible visibility with a significant reduction in origination expenses. Along the way we have learned valuable lessons of successful system deployment we will apply across the entire company. Vision Commerce will be a key partner as our business evolves and expands."
- Eric Castro, CEO
Bankers Healhcare Group