Line of Business Applications are the backbone of your business’s productivity. As such, taking a casual approach to choosing your LBA’s can have serious and unintended impacts on your business, your employees and your clients. Unfortunately, we repeatedly see businesses enter into unexpected and frantic searches for new LOB applications only when the needs is desperate. The hunt for the perfect LOB can often be like the hunt for a new IT partner: you don’t know you need it until you needed it yesterday. With this mindset, time to implementation and price often outweigh the much more important variables of suitability and sustainability.
Business News Daily says the first question you should be asking yourself when choosing a new application is the budget question, followed by why your business needs a new application, and then what features are necessary to your needs. However, with our experience in working with clients in multiple industries, we’d like to take a more integrated approach. When you’re hunting a new LOB, you need numbers. Not only for the budgeting portion, but for a holistic understanding of what an application can do for you, when you can expect an ROI, and how much you need to spend to meet your needs.
Making it a Numbers Game
First things first: Get feedback from the end-users who will be working closely with the new application. What are their needs? What are their wants? How much time and frustration will the application save those users? All of this can then be translated into dollars, allowing you to quickly determine your time to ROI, your budget, the time the application needs to save your employees, and how often the application needs to be used to make it worth the purchase.
Time to ROI
You pay an employee $20 an hour. That employee spends 2 hours a day completing a task that the new software will allow her to do in about 30 minutes. Currently, you are paying $40 for her to complete that task ($20/hour x 2 hours). However, with the new software, you will only be paying her $10 to complete the task ($20/hour x .5 hours). This puts $30 back in your pocket.
If the software costs $9,000, then your employee only needs to complete that task 300 times for the software to have paid for itself ($9,000 divided by $30/per task).
With about 262 workdays in the year, it will take the software just over a year to start creating an ROI.
You know you want an ROI in 3 years. You also know you want to free up your employee to complete the task in half the time. With the new application, you should be getting a $20 return each time the task is completed. She completed the task every day, so in 3 years, she will have completed in 786 times.
To find the price, multiply the return, $20, times the number of times the task is completed, 786. You are looking for an application in the price range of $15,720.
Comparing Multiple Applications
You have two application options. Application A allows your employee to complete the task in 1.5 hours and is $11,000. Application B will allow her to do the task in 1 hour, but is $15,000. Which is the better deal?
Working with the same information as above, we can determine that Application B will require her to complete the task 1,100 times, or for just over 4 years before it gives an ROI. Application B will require her to complete the task 750 times, or just about 3 years before an ROI. Although Application B is more expensive upfront, it is a better deal overall.
This equation allows you to better understand the true quality of an application. As shown, you can approach it from several different angles. This understanding, in turn, helps you formulate budget dimensions that are true to your businesses needs. Arbitrary dollar amounts will start to make sense. You’ll start to understand which proposed features actually influence productivity and which are fluff. Most importantly: you will be able to accurately forecast the impact each application will have on the long-term health of your business.
Stop trusting your business’s productivity to last-minute queries in the Google search bar. Put it in numbers and take control.