What Is the ROI of BPM?
Implementing business process management ( BPM) for your project or organization is associated with increased return on investment and maximizing the utilization of all resources. But, understanding the differences between types of ROI for your project can help you maximize your investments.
This includes learning how to recognize the difference in benefit types. ROI types may range from actual costs of implementation or long-term cost savings for your operation. In fact, knowing more about how direct and indirect ROI of BPM affects your organization can be key to the success of your short-term and long-term projects.
Direct Versus Indirect ROI From BPM
Direct and indirect ROI both describe the overall return on different parts of a project. Direct ROI revolves around BPM costs that can be quantified easily.
For example, the actual cost of a software platform is considered in calculating direct ROI.
Think of direct ROI as hard, tangible costs that can be leveraged to identify ways to increase your ROI. The simplest way to define indirect ROI is to think of long-term costs. This includes costs associated with adherence to environmental regulations, meeting quality standards and mitigating risk. Each indirect cost reflects how well your company will do in the future. Employee training would be an example of a value that has an indirect benefit to your company, which you can learn more about by downloading this guide. Of course, indirect ROI may also have benefits for short-term savings as well.
Direct ROI of BPM
The direct ROI of BPM goes back to knowing how to manage specific, finite costs within your project. This includes the immediate costs of implementing a new BPM platform, such as purchasing new computer terminals, maximizing your investment. Process management naturally leads to lower costs and better overall visibility. But, the direct ROI from effective process management continues to benefit your project in the following ways:
- Improved Efficiency – Process management enables your organization to determine what areas of a project appear to be lacking. This results in better identification of weak areas and how to improve them.
- Minimized Risk For Error – Decreased risk for error derives from ensuring the goals, including those of smaller activity-groups, are met.
- Clearly Defined Roles and Responsibilities For Employees – When employees understand their responsibilities and roles in your project, you can help keep them on track and budget.
Direct ROI helps you plan for the immediate future of your organization. And, it can help you maximize your investments in Oracle Primavera, risk management programs or other resources.
Indirect ROI of BPM
Indirect ROI reflects costs that warrant subjective evaluation, which are integral in devising a strategic direction for your company, reports BMPInstitute.org. A strategic direction also includes the use of training and any resources that affect the success of your company, as explained in a previous blog post. For example, completing training to use BPM tools might be key in unlocking higher ROI.
Reduced future costs in acquiring new clients reflect indirect ROI as well. Since you can approximate a value, it does have an influence on your ROI calculation. Yet, you can reduce its impact by using existing BPM data sources to create more-accurate evaluations. Calculating indirect ROI results in the following benefits:
- Standardized Process and Procedures Across the Organization – Standardization gives workers the tools and resources needed to ensure adherence to budget and scheduling issues. For example, indirect ROI impact on standard procedures may include the creation of enhanced policy guidelines.
- Better Collaboration – Since more employees understand what to do, including how to respond in unusual circumstances and manage scope creep, as explained by Upside Research, indirect ROI of process management results in better collaboration. This helps to ensure future success as well.
Calculating ROI of BPM
1. How to Calculate Direct ROI
Like any ROI calculation, you need to know what you have before you can take full advantage of your investments, such as the investment discussed in this ebook. To calculate direct ROI, you need a list of the actual expenses incurred from implementing BPM in your project. Calculate direct cost savings for each expense. For example, assume BPM implementation results in a 20-percent cost savings of project management platform costs overall. Next, add the cost savings to your original expected profit. Divide the sum by the total costs of process management implementation.
Direct ROI = (Total “Hard” Cost Savings & Benefits / Total Expenses of Implementation) * 100
2. How to Calculate Indirect ROI
Indirect ROI calculations are more complex. This is because the initial values needed to perform the calculation are more difficult to obtain, such as reduced costs of growing your client-base.
Determine the costs associated with maintaining your project without process management, such as regulatory, quality, new client acquisition or risk costs. This is your control value.
Define the projected cost savings of maintaining your project after BPM implementation in relation to compliance, quality, client acquisition and risk. This is the projected net benefit on indirect factors.
Indirect ROI = (Projected Net Indirect Benefit / Control Value) * 100
Depending on who describes the calculations, terminology for values may vary from source to source. However, the base formula remains the same. Both results for the general formula must be multiplied by 100 to determine a ROI percentage.
Note: In some cases, the parenthetical calculation in ROI may result in a decimal, integer or other number. For example, $29,000 in Project Benefits divided by $20,000 as the Control Value results in 1.45. Multiplying this value by 100 results in a 145-percent indirect ROI.
Take Full Advantage of Your Investment Today
Remember the following key points when you start thinking about calculating ROI of BPM systems in your organization:
- Direct ROI is a measure of “finite,” quantifiable values, such as material costs.
- Indirect ROI reflects items and processes that requires subjective assessment of value, such as likely percentage of time spent searching for documentation.
- Direct ROI boosts efficiency, reduces risk and better defines roles and responsibilities.
- Indirect ROI enables enterprise-wide collaboration and standardization of processes when paired with direct ROI calculations.
- The formula for calculating direct or indirect ROI remains the same. (ROI = Net benefits / Cost)
BPM is only one part of the whole picture to maximizing your project’s investment. If you are struggling to make the most of your Oracle Primavera investment, download this ebook. It can help you find new ways to realize BPM cost-savings and boost the performance of your project and staff today.