Tip of the Week: Determining the Return on Your IT Investment

how to calculate return on investmentAs time passes, your business will need to be able to grow and develop its use of technology through thoughtful investments and improvements. To do so, it helps to calculate the returns you can anticipate seeing from these investments. For this week’s tip, we’ll go over how to do so.


 

How Investing in the Right Technology Benefits Your Bottom Line

We recently examined managed IT solutions provide immense value. Today we will investigate how to turn your IT department (technology powerhouse) from a cost center to a business asset generating a positive ROI:

  • Increased Revenue – If your investment results in the ability to offer something new to your business’ clients, you’ve opened another revenue stream to increase cash flow.
  • Improved Customer Experience – Companies that leverage technology to deliver a better experience will yield a 1.6x – 1.9x higher YoY growth versus less CX driven businesses1. For example, in the hospitality sector, restaurants and bars are utilizing gamification with modern POS systems. These systems reduce overhead by streamlining the ordering process, allow for games to be played while patrons are waiting, and gamify the customer review process to provide management with real-time performance reporting.
  • Cost Reduction – With the adoption of automation, employees spend less time on tasks that once required hours to complete. This is important not just because the automation can do these sometimes-menial tasks in a fraction of the time, but it also shrinks the chances for human error. Implementing the right technology enables companies to remain agile, collaborate more effectively, and increase productivity while reducing the need for maintenance.
  • Decrease Capital Expenses – You also have the option of reducing your capital expenses. Finding more cost-efficient options for your IT needs will allow you to do this. IT Support Guys offers unlimited tech support often at a price-point that is lower than the cost of one salaried IT manager for small business. An IT managed services plan helps reduce capital expenses.
  • Cost Avoidance – Of course, if you have the option to eliminate a cost, why wouldn’t you? Removing bottlenecks, downtime, and other financial drains through improved technology solutions are an effective way of doing so.
  • Capital Avoidance – It’s hard to get more efficient than eliminating one of your costs entirely. Any investment that you make that allows you to sidestep other costs falls under this category.

With a framework to identify the benefits that your technology stack may provide, you will be better equipped to calculate your returns.

Calculating Your IT ROI

The equation to calculate the return on investment for your technology is the same as it would be for any investment except we’ll take it a step further by factoring the actual cost of managing your IT infrastructure by accounting for network downtime and productivity losses.

Return on Investment = ((Benefits + Gains) – (Fixed IT Costs + Lost Productivity)) / Cost

  • Average time spend managing technology vendors X number of vendors X avg hourly salary of it staff
  • The number of hours spent managing it functions X hours spent by all staff performing it functions

Next, we’ll calculate your productivity loss from network downtime or system-related issues. Use the following calculation:

  • Average employee hourly salary at a location impacted by a downtime incident X the number of staff at the location X by the number of hours

Finally, we’ll take your total benefits (calculated by subtracting your costs from your ultimate gains) and divide it by your overall costs. This gives you a simple metric that makes your benefits easy to understand, and thereby enables you to make comparisons quickly when investing in technology. The same process could be followed when calculating ROI for IT projects (future or one-off instances).

First, we’ll figure out your current or predicted annual costs tied to information technology ROI to accurately weight the costs and benefits. We recommend consulting your IT stakeholder to isolate the following calculations:

Other Considerations

You should also keep a few other qualifications in mind as you plan your next IT investments.

  • Who in your organization will be affected by the new investment and the changes that result from it? How will these changes impact them?
  • Are you focused more on seeing an ROI that’s financially quantifiable, or is the value in your investment more accurately described in less tangible, qualifiable terms?
  • What – if anything – could potentially go wrong during the implementation of your IT improvements?

Information Technology plays a critical role in the profitability of your business. Not all technology or technology company is created equal. Investing in the right technology and managed IT solutions partner ensures your employees are productive for continued growth, best of all – our cost-effective unlimited service plans and excellent customer support means you are protected while saving hard-earned dollars. IT Support Guys continues to provide outsourced IT for small to mid-sized businesses since 2006. Call us today at (855) 448-4897 – Let’s make IT great again.

Learn More:

  1. Forrester and Adobe – The Business Impact of Investing in Experience (pdf)