calculatingroi for bpm

8/11/2019 CalculatingROI for BPM

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Calculating Return onInvestment for BusinessProcess Management

A BUSINESS PROCESS MANAGEMENT WHITE PAPER OCTOBER 2011

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Calculating Return on Investment for Business Process Management t 2

AuthorAs Director of Perficient’s national Business Process Management (BPM)

practice, Kevin Feldhus provides leadership in developing and

implementing Perficient’s BPM strategies with integrated enablement plans

for sales and delivery. Kevin is a business-focused, tool-agnostic BPM

professional with years of senior-level executive consulting experience. He

has been focused nearly 15 years on using BPM as a method to bridge the

communication gap between business and IT by leveraging a background

in finance and IT consulting to create customized business-focused BPM

solutions. He has led multiple strategic BPM engagements, includingstrategy and roadmap, assessment and implementation projects and led all phases of the BPM

practice including marketing, alliances, training, recruiting and communications




IntroductionReturn on Investment (ROI) is a performance measurement tool used to evaluate the efficiency of

an investment. Each individual project or a project within a program should have the ROI

calculated to provide the basis for the value of the investment and the “worth” of that endeavor to

the organization. A key part of any business case is to understand not only why an organization

should undertake an initiative, but the value of that endeavor (i.e. the ROI). The ROI is also a key

critical metric in determining which projects are funded from a pool of competing potential

projects.

Business Process Management (BPM) is defined as a disciplined approach that focuses on effectivelyand efficiently aligning all aspects of an organization, with the vision of constant process

improvement, technological integration and increasing customer value. Since a key objective is

increasing customer value and subsequently shareholder value, any improvement in a business

process (increase revenue/reduce cost) should have the ROI calculated. BPM projects tend to be

intangible (the results you cannot touch, but experience), so it is sometimes difficult to “see” the

results of a BPM project or program and subsequently the value to the organization. As a result,

calculating the ROI for a BPM engagement may be a difficult task, but not impossible.

This paper provides guidance on calculating ROI for a BPM engagement. As is typical in most

college text books, the formula is the simple part; determining and gathering the inputs is the real

challenge.

Calculating ROI

Two ROI calculations are recommended for a complete BPM ROI analysis, a target ROI and the

actual ROI.

The target ROI is the initial ROI calculation completed when the BPM project is in the planning

phase. The basic calculation is the estimated dollar cost of the project subtracted from the

anticipated dollar gain from the project multiplied by 100. The result is typically expressed as apercentage. The equation to calculate ROI is:

ROI % = (Anticipated $ improvement – Estimated project cost) / Estimated project cost * 100)



ROI Calculation Steps1. Determine the dollar amount of the anticipated improvement, (the dollar amount of the

estimated return on the investment). Some examples to consider include:

• Process Reduction %: Current estimated cost of the process * improvement % (i.e.

$1,000,000 * 10% improvement = $100,000)

• Revenue Increase: $ amount or % of the revenue increase

• Cost Reduction: $ amount or % of the cost decrease

• Headcount: The fully loaded cost savings (number of employees * salary + benefits). This

is a type of cost reduction that captures a lot of BPM interest

• Regulatory: Cost of not implementing the regulation, expressed as the potential impact of

non-compliance (i.e. fines or cost of not doing business)

2. Determine the estimated dollar project costs, ensure to include:

• Consultant costs (hourly rates plus associated expenses)

• Other vendor costs (hourly rates plus associated expenses)

• Organizational subject matter expert (SME) costs (include associated expenses)

• Hardware costs

• Software costs

3. Subtract the estimated project costs from the $ amount of the anticipated improvement

4. Divide the result from step 3 by the $ project costs

5. Multiply the result of step 4 by 100 in order to represent as a %

Example ROI Calculation:

XYZ Company invested $100,000 in an internet advertising campaign to promote a new product.The results realized by the company were new project sales of $500,000 directly attributable to the

internet advertising campaign. In order to calculate the ROI, subtract the cost of the investment

($100,000) from the sales results attributable to the campaign ($500,000). Take the $400,000 result

and divide it by the amount of the investment ($100,000). The result is 4, which multiply by 100

to get the ROI as a percent. The result is a 400% ROI.





BPM Simple Example:1. Target ROI Calculation: For a BPM process improvement project, project costs are estimated

at $500,000. The goal of the project is a 10% increase in process efficiency. Current process

costs are estimated by the business to be $10,000,000. The ROI calculation $10,000,000 *

10% is an initial process efficiency target ROI of $1,000,000. The initial target ROI minus the

project estimated costs of $500,000 is $500,000. This result divided by the project estimated

cost of $500,000 is 1, which when multiplied by 100 is a 100% ROI.

2. Actual ROI: For the BPM process improvement project, actual project costs are $600,000 and

the actual increase in the process efficiency is 9%, not the targeted 10%. The result is an actual

ROI of 50%. The difference is a 50% decrease in the targeted ROI, due to project cost overrunsof $100,000 and actual improvement in efficiency was $100,000 less than anticipated.

BPM Not-So-Simple Example:

It becomes more challenging when the ability to calculate the anticipated improvement in a dollar

amount is not relevantly apparent. For example, a project to “Manage a Portfolio of Projects” with

the stated management project goal to “increase visibility into the projects within the portfolio”.

Here is how to calculate the ROI in this example.

Estimated project costs are $3,000,000 including process design, build and rollout. The project

portfolio contains $10,000,000,000 in projects. After discussions with the Project Sponsor and theProject Manager, the tangible goal agreed to was to be able to align the portfolio to the corporate

goal of a 5% annual return on assets. The initial portfolio was estimated to be returning a 4.8%

return. So, the goal of the project was to increase the return on the project portfolio by .2% (5.0%

- 4.8%) or $20,000,000. (The increase would be the result of management having visibility into the

portfolio to improve the return by optimizing the projects within the portfolio). The ROI calculation

is $20,000,000 ($10,000,000,000 * .002) less the estimated project costs of $3,000,000. The result

of $17,000,000 is then divided by the project cost of $3,000,000 for a factor of 5.67, which when

multiplied by 100 is 567%. Not a bad ROI for a project that was kicked off with no ROI calculation

and funded based on management’s frustration that they could not see the status of the work within

a project portfolio.




ConclusionBPM combines people, process and technology to improve organizational performance and

customer value.

The basic challenge is not the calculation itself, rather quantifying the ROI. This is especially

challenging for BPM projects, where the goals and objectives of the project may be expressed in

non-tangible terms. The goal however, is to determine two ROI’s for each project, a targeted ROI

calculated during the planning phase of the project and an actual ROI, calculated after the solution

has been implemented. The analysis of the variance between the two ROIs is beneficial in

analyzing the projects successes and “opportunities for improvement”.

Perficient’s BPM Solutions and Services

BPM combines people, process and technology to improve organizational performance and

customer value

• Strategy & Roadmap - Develop a prioritized roadmap of BPM projects

• Assessment - Understand and quantify the potential of a BPM program

• Implementation - Realize the benefits of the BPM program

• Training - Identify and implement process efficiencies across the organization

Why Perficient?

• Experience delivering a variety of successful BPM projects

• Proven systemic BPM delivery approach to understand and define business processes based

on best practices

• Expert facilitated session(s) to generate a solution with demonstrable return on investment

• Leverage Perficient’s technical expertise to solve the technology requirements of a business

process• Utilize Perficient’s business partners’ BPM tool suites

For information on Perficient’s leading BPM solutions and services please contact [email protected]

calculatingroi for bpm

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