The Cost of Inefficiency: Calculating ROI for Timesaving Technology
Technology increases efficiency, but at what cost? As much as nonprofit boards may be aware they need to move more swiftly toward digital transformation, it can be hard for some board members to loosen up the purse strings enough to take the plunge. This is where calculating ROI for timesaving technology can help sway board members. Yet, what is the cost of inefficiency?
Inefficiency can result in lost time, less money, more errors, and greater risks. This is a lot to lose, considering nonprofits are accountable to donors, stakeholders, and the community at large.
The question is less about whether you need ROI-improving software and more about how to get the rest of the board to understand its benefits.
What Is the Cost of Inefficiency?
ROI-improving software requires a financial investment. For some nonprofits, that’s often where the rubber meets the road in the boardroom. Companies that sell ROI-improving software are quick to play up the features of their product, yet board members need to know that the real value pays off in efficiency.
The expense of ROI-improving software only tells part of the story. The rest of the story entails what nonprofits can save that offsets the initial investment and improves things overall.
Inefficient processes slow down workflows. Slower workflows impede cash flow. The slower processes go, the more money nonprofits lose.
Inefficiency also causes the board and staff to lose time. What many boards fail to account for is the many minutes that can be lost within a day. It may not seem like much when one person loses a few minutes here and there, but it starts to add up when you multiply the minutes lost by many people.
Doing everything manually can be complicated. Complicated processes require a greater investment in people’s time, and time is money. We see most businesses moving more toward automation because it’s the only way they can be competitive in today’s world.
Automation saves time, yet it cannot replace all tasks. Many processes still need humans to check the automated processes, and this cost also has to factor into the equation. Processes that go unchecked, especially concerning money, could cause serious auditing problems.
Human beings are not perfect. They make mistakes, and that has a big impact on efficiency and the quality of work. The more errors people make, the longer things take. That all goes right back to time costing money.
Inefficient processes also negatively impact the morale of employees and volunteers. Low morale can cause people to work more slowly, and perhaps, lose faith in the nonprofit and its leadership.
More efficient processes help keep everything up to date. As a result, increased efficiency decreases risks. Board members and staff won’t spend as much time backtracking to retrieve data. Moreover, technology gives boards more data and better data, which can be used to make better decisions for the nonprofit. Better decisions save the nonprofit time and money and improve the nonprofit’s reputational status as well.
At the end of the day, ROI-improving software typically provides enough benefits to more than justify its cost.
Evaluating the Benefits of ROI-Improving Software
In making the case for ROI-improving software, your board needs to know which questions to ask. For example, what should your board look for when deciding if the investment is worthwhile?
You have to look at the outcomes and benefits of the software versus the software itself. Many variables go into projecting outcomes, so your board may want to consider the minimum and maximum potential outcomes.
After implementing the software, it is also advisable to measure the actual outcomes.
A basic formula will give you a basis for calculating the benefit of ROI improving software.
The benefit of Investment of ROI Improving Software — Cost of the Investment
____________________________________________________________ X 100 = ROI of the Software
Cost of the Investment
As a simplified example, if your nonprofit saved $10,000 because of your investment in ROI-improving software and made an investment of $5,000 on software, you would subtract $5,000 from $10,000 to get the top number which would be $5,000. Then, divide by 5,000, which gives you 1. Now, multiply that by 100, and it gives you a 100% return on your investment.
While the investment cost is easy to calculate, the benefits of ROI improving software can be harder to ascertain. Nonetheless, it is easier to assess the benefits when you break them down into hard and soft benefits.
Hard Benefits of ROI Improving Software
What are the hard benefits of ROI improving software? The most discernable metric is an increase in revenue or profits directly resulting from efficiency. Hard benefits also include things like simplifying processes or making them less complex.
You may be able to quantify the difference in costs or time saved. Also, consider whether software saves you time in training board members, staff, or volunteers. Still another potential hard benefit is having to hire fewer people. ROI-improving software can also enable faster reporting or give your operations more flexibility.
Lastly, ROI-improving software may position your nonprofit to be able to offer new products or services.
Soft Benefits of ROI Improving Software
Soft benefits are those that are more intangible. They are harder to quantify in dollars and cents. Nonetheless, soft benefits are no less important than hard ones and should be included in your ROI calculations.
To be specific, what kinds of things are considered soft benefits? The following list should give you a start:
- Improved satisfaction of your benefactors
- Improved user satisfaction
- Greater automation that leads to faster and more usable data
- Better data to inform decision making
Something else to consider when doing your calculations is that it takes time for everyone to become familiar with new software. This is important to consider because the ROI numbers for the first year or two will be lower than in later years.
Overall, by calculating the ROI of ROI-improving software, your board will better understand which software programs are truly beneficial and translate that data to donors and stakeholders.
Efficiency also pertains to your board. Have you considered the ROI in purchasing a board management solution to manage board business? Imagine how much your nonprofit could save on creating board books and setting up board meetings alone. With BoardEffect, you can automate many of your board meeting processes, such as meeting preparation, taking minutes, sharing documents, and collaborating. The security alone of BoardEffect will save you money and give you peace of mind. That’s something you can take to the bank!