ROI: Justifying Support Tool Purchases to Your Management

So, you’ve decided that your support center needs a new tool.  Whether it’s an Automatic Call Distributor (ACD), contact tracking software, email management system, knowledgebase, or web-based support product, gaining approval for your purchase from top management can be a major hurdle.  There are two games to play in gaining approval for your purchase: the financial and the political game.  Creating a compelling financial picture of the benefits gained with the new technology is the first game and is vitally important, especially when you play this game well. However, creating a complex spreadsheet with ROI calculations does not always guarantee you the nod from the ultimate decision maker.  The hidden game in gaining management approval is political persuasion.  Let’s look at both games as they intertwine themselves to make a successful justification project.

There are six steps to justifying your purchase:

Pitfalls to Avoid

Before proceeding to a detailed discussion of the steps, it’s important to know what not to do in justifying your purchase.  Here are the pitfalls to avoid in presenting a Cost Justification Analysis:

• Under-estimating the costs
• Under-estimating the time involved in the implementation
• Over-estimating the savings/benefits
• Using the wrong evaluation criteria
• Failing to find a project sponsor
• Failing to align your purchase with company strategy

By following the steps outlined in this article, most of these pitfalls can be avoided.  However, sometimes it is difficult to avoid all snags.  Correctly estimating implementation time (and therefore costs) increases in difficulty in direct proportion to the size and scope of your project.  However, if you conservatively estimate the savings and benefits of your project, you allow yourself some room to err on other calculations.

Step One: Talk to the Decision-maker

As with so many things in life, the first step is the most important!

Who is the person that will ultimately approve or nix your project?  This is the person that you must meet with to discuss your project, preferably before you even start looking for a vendor or a specific product.  The goals of your meeting are to alert the Decision-maker to the problems that you are facing, explain how you think technology could help you solve it, and understand what would persuade him/her to OK the purchase.  This is the heart of the political persuasion game.

However, there are some steps to take before scheduling this meeting.

First, find an Influential Ally.  Is there another department or organization in your company that would benefit from implementing the tool that you are seeking?  For example, a knowledge base might be used by sales to record information that they need to handle prospective customer’s objections or requests for information.  Or, a contact tracking software might have an add-on module that provides asset management, which would be very helpful to the entire IT department, or a bug-tracking system, which could be used by the Engineering or Product Development group.  If you manage an internal Help Desk, it would be ideal to find a non-IT executive in your company who is a champion for the Help Desk, and persuade that person to become your ally in the purchase approval. 

Although it is not necessary to bring your Influential Ally to the first meeting with the Decision-maker, it is very helpful to gain that person’s endorsement, which you will mention to the Decision-maker.  Talk to the Influential Ally, and discover how they think your new purchase would benefit their department.  Write down the benefits.  Also ask this person for advice on approaching the Decision-maker, and if they’ve had success in gaining approval for expenditures in the past.  Note all strategies used, and any people that were helpful to him/her in the effort.  Follow-up on all suggestions offered.  You are gaining valuable information on what is important to the Decision-maker and what approach works best.

Next, if the Decision-maker is not your boss, get your boss to participate in approaching the executive. The two of you should together schedule a meeting with the Decision-maker and strategize how best to approach that person.  Make a written game plan on how to structure the meeting.

After presenting your situation, here are some questions to ask your Decision-maker:

• How do you see this purchase fitting in with our corporate strategy? (Be sure to present your thoughts on this first!)
• If I could show you that a purchase will save us money in the long run, would you be interested?
• What financial calculations do you base your purchasing decisions on?
• What evaluation criteria do you prefer: Return on Investment, Net Present Value, internal rate of return, simple return, payback (have examples of each to show)?  All of the above?  None of the above?
• Would you like to compare 2 or 3 vendor’s costs in the study, or just the finalist that we choose?
• Can you share with us successful ROI or Cost Benefit studies for purchases that have been approved in the past?

It is extremely important to discover exactly what information this person needs to make a decision.  I have learned this the hard way.  In working with the CFO of a large corporation to gain approval of an enterprise-wide system, I mistakenly assumed that this person would need in-depth and complicated spreadsheets showing all of the complex financial calculations (NPV, ROI, IRR, payback, etc) used to test purchase decisions, and worked hours to create it.  I was wrong!  What he wanted was something similar to this straightforward form:

On the other hand, other companies that I’ve worked with require a very formal and in-depth ROI study, and I’ve toiled for days to create complex spreadsheets and cost-benefit studies for them.  The important point is to find out exactly what your Decision-maker requires to facilitate gaining approval of your purchase.

Be sure to keep the Decision-maker in the loop about your activities surrounding this purchase.  It keeps your project top-of-mind for that person, and makes it easier for you to come back at the end and discuss the purchase.

Lastly, it’s a good idea to befriend someone from Finance or Accounting at this stage, or ask the Finance Manager to recommend someone you could be working with in the future. You need someone who can help you calculate the financial return formulas.  Ideally, this person has experience in creating Cost Benefit and ROI analyses, and can be your partner in preparing your case for approval.  Once you identify your Finance/Accounting analyst, visit that person to tell them what you are doing and seek their advice in gathering the data.  Tell them you will need their expertise in preparing the return numbers.  Treat this person like your best friend, since you will be very grateful for their assistance in the future!

Step Two: Quantify Benefits

Although it requires effort, this step really is the fun part of an ROI or Cost Benefit Analysis.  In it, you calculate the anticipated savings associated with using the proposed tool. 

In a support center, benefits generally boil down to one main line item: reduced headcount.  By improving productivity or reducing time required for any human-mediated activity, you eventually arrive at a lowered headcount.  Be aware that this gets tricky, because when you start discussing reduced headcount, you get two knee-jerk reactions.  On one hand, your representatives get nervous because they fear they’ll lose their job, and on the other, executives rub their hands in glee, thinking that they’ll get to reduce the cost of the support center by reducing the overall headcount.

What really happens when you increase productivity in a support center is you “Decrease the Increase” in headcount.  Without tools to increase productivity, the demand for more agents in the support center increases in direct proportion to a growing user base or the number of products sold.  What you attempt with support tools such as an ACD, IVR system or an e-support tool is to improve the ratio of customers to representatives, so each representative can serve a larger number of customers.  However, decreasing the absolute number of representatives in the support center is rarely achieved, for two reasons.  First, technology is proliferating, as seen in more frequent updates to existing systems and the increasing number of technology-based products customers use on a daily basis.  This creates an ever-increasing demand for service on those products.  Secondly, many of the current technology tools are designed to automate and off-load easy, quick questions from customers.  That means that the human-mediated contacts are more complex and take longer to handle. Longer handle times in a contact center increases the need for agents.  Therefore, we generally see a ‘Decrease the Increase” situation, which can be graphed as follows:

The yellow portion in the graph above represents your headcount requirements without implementing productivity-enhancing tools, and the blue portion represents your anticipated headcount with the tool.

So, where do you find the drivers of a “decreased increase” in headcount requirements?  Here are some metrics that could be quantified to show a reduced need for headcount.

Drivers of Decreased Increase in Headcount are:

• Call Avoidance or Call Deflection (as seen with e-support or IVR functions)
• Decreased Average Handle Time of rep-assisted contacts
• Decreased new hire training time
• Lower Headcount needed to dispatch incoming contacts (either email or voice)
• Improved Agent Retention (attrition costs a company between 2 and 7 times the agent’s annual salary)
• Reduced Performance Penalties, if applicable
• Reduced Headcount needed to do routine reporting
• Lower Computer or facilities cost
• Decreased Data Entry errors
• Decreased Telecom costs
• Reduced or eliminated Management time spent creating ad-hoc reporting or assembling reporting
• Reduced Downtime of user community

But before starting to quantify benefits, you must have a projection of what your costs would be without your new purchase.  Generally, you project costs over the life of the purchase, which is usually 3 or 5 years, depending on your company’s accounting practices.  Check with your finance analyst for specifics.  You first need to project the number of contacts you expect to receive if you don’t implement the new support tool, over the next 3 or 5 years.  Next, you’ll project the number of representatives you’ll need to service those contacts, and the cost of hiring, training and retaining them.  Now you have a baseline that quantifies what will happen if you don’t implement the new technology.

Now you can quantify the savings anticipated by examining the Driver of Decreased Increase in Headcount, above, and quantifying the results of each item.  Re-work the projected headcount requirements for the next 3 or 5 years, this time taking into account the reduced contact volumes or reduced average handle times that the new technology will enable.  Eliminate the cost of some current positions, if applicable; for example, you may be able to re-deploy employees who are currently dedicated to reporting or data input.  If you are an internal help desk, you can quickly gain the attention of upper management by quantifying the value of reduced downtime in your user community, especially if many of your users are highly compensated employees.  I worked with one internal help desk that used this one metric as the entire justification for their technology purchases in starting up a new help desk.  It came to an astounding dollar amount!

Some people can get carried away with showing benefits by calculating dubious savings or putting a hard-dollar amount on soft-costs, such as improved customer satisfaction and retention.  I suggest that in your presentation to your Decision-maker you list and describe the soft-cost benefits that you anticipate, but conservatively omit their quantification.  This gives you some wiggle room in the ROI.  Since I advocate that you re-do your ROI study a year after implementation, that would be the time to quantify soft costs if you can and show even greater ROI than expected.

Step Three: Quantify Costs

This is thankfully a little easier than the previous step.  You must consider the Total Cost of Ownership (TCO) over the 3 or 5 years in which you depreciate your purchase.   Your chosen vendor or vendors can help you with much of this step.

Some companies expect that you will compare ROI’s on several vendors’ solutions.  Hopefully, the benefits will be the same or very similar and you’ll only have to create those calculations once.  However, the costs will be different, and Step Three may need to be repeated for several vendors.

Your vendor can provide projected costs for the proposed solution.  This must include all costs associated with the solution, including:

Capitalized Costs:

• Software purchases
• Hardware and OS purchases
• Implementation costs (especially in the case of Customer Relationship Management (CRM) implementations, this amount can be many times greater than the cost of the software/hardware)

Non-capitalized Costs:

• Maintenance and upgrades for the life of the purchase
• Future consulting fees

Salary costs (fully burdened) of any additional internal headcount needed to maintain system

The first three items above are generally considered capitalized costs, which means they can be reported on the Balance Sheet of the company, and depreciated over the life of the asset.  Be sure to check with your finance department about capitalized vs. non-capitalized items, as they may have a different opinion on your specific situation.

Step Four: Create the ROI

You already know how complex your study must be, because your Decision-maker told you in Step One.  Perhaps you are lucky enough to possess a copy of an ROI analysis that was approved in the past.  Steal shamelessly!  Copy both the basic format and the formulas used in that study and improve on them if you can.

Once you’ve completed the legwork described in Steps One through Three, you’re ready to return to your Finance or Accounting buddy and start to work on the analysis.  Bring all your supporting data to that person, and be prepared to roll up your sleeves!

A format that’s been successful for me is to create a spreadsheet with multiple worksheets, one each for Assumptions, Costs, Benefits and ROI. 

• Assumptions Worksheet gathers all your current business metrics and projects them over the next 3 or 5 years, depending on your company’s accounting practices.  You quantified these metrics in Step Two, “Quantify Benefits”
• Costs Worksheet displays the Total Cost of Ownership numbers that you prepared in Step Three, “Quantify Costs”.  Separate your costs into Capitalized Costs and Non-Capitalized costs, as discussed above.  Your finance buddy can help you sort your expenses in to the two categories.
• Benefits Worksheet details the benefits that you anticipate from the new tool, and that you carefully calculated in Step Two, “Quantify Benefits”.
• ROI Worksheet presents the financial calculations that you and your Accounting/Finance helper will calculate.  You should already know what evaluation criteria that your Decision-maker is expecting, and that could be some combination of Net Present Value (NPV), Internal Rate of Return (IRR), Return on Investment (ROI), Payback Period, and others.

You might also want to prepare a document that summarizes your findings and presents the soft-dollar benefits that you anticipate.  Soft benefits can include:

• Improved customer satisfaction and loyalty
• Improved company image
• Improved employee satisfaction and loyalty
• Better management data and reporting

Sometimes the soft-dollar benefits can be more compelling than any fancy financial formulas.  Many years ago, I was in the position to justify the purchase an Automatic Call Distributor (ACD) system to the President of my small software company.  It was a huge expense for that company, but the main evaluation criteria became the image of the company to our clients.  Indeed, a client had called the President and asked her why we hadn’t invested in a really good telephone system.  We needed to appear bigger than we really were, and made this purchase because of that.

By the way, your vendors probably will want to do the ROI study for you.  You can bet that they will paint a very rosy picture, which may not be as realistic as you’d like. You can certainly take them up on the offer, but keep in mind what the vendor’s motive is – to sell the product – and use their analysis as a starting point.  Especially in the area of Benefits, be sure you take control of the justification.

Step Five:  Present to Decision-maker

If you’ve done all your homework in Steps One through Five, you should feel very confident in approaching your Decision-maker with your findings.  If you’ve been keeping that person informed about your progress, they will not be surprised to see you in their office again with your report in hand.  Bring your boss or Project Sponsor, and if you think that it might be a hard sell, you might want to bring your Influential Ally with you also.  Be sure to brief your boss and ally before the meeting, and strategize with them about the best way to structure the meeting.

Hopefully, your hard work will bear fruit at this very moment, and you will receive the green light to proceed with your purchase!  However, there may be a number of reasons why your proposal is not accepted at this time.  Remember what salespeople know so well: No only means “Not now”.  If you really believe that your support tool is going to save time and money and/or improve customer satisfaction, be patient and continue to work with management to quantify the need and the benefits. Some of the most successful executives I know are extraordinarily patient, knowing a more opportune time to gain approval and effect change will present itself in the future.

Step Six: After a year, re-do the ROI

This step is unfortunately rarely done, but it gives you great credibility with your company.  After the new system has been operating successfully long enough to collect sufficient data (usually about a year), re-visit your ROI study and re-calculate the actual benefits you’ve accrued from the new tool.  Compare the current metrics with your baseline metrics that you established in your original project.  You may be surprised to find quantifiable benefits that you never imagined, or you may be surprised at the amount of the benefits that you did anticipate.  Most times, you are so used to the new system by now that the benefits have become hidden to you, and people in your company fail to appreciate them.

This step helps to assure upper management that the purchase was indeed a good one.  If your implementation has been rocky or painful, it is doubly important to take this step to highlight the benefits that may not be apparent to managers outside your support center.  In any case, it makes you look very smart.  Be sure to present your findings to the Decision-maker, your Influential Ally, your finance friend, and any other managers that you need to keep informed.

Conclusion:

This six-step process helps you play both the financial and political games involved in getting the OK from your management to purchase a support tool.  The steps provide a disciplined approach to this often-messy endeavor.  Although there is no guarantee in this or in life, following these guidelines certainly gives you the advantage in getting to YES!

Kristin Robertson, president, KR Consulting, 604 Saddlebrook Dr., Colleyville, Tex. 76034; 817/577-7030. E-mail: krisrob@krconsulting.com.