Measuring Return On Investment (ROI)

With Computing Solutions

By Jack Demeis

Is it really worth investing in computers or software or automation? Every day owners and managers question the real value of the return of those investments. This article is intended to provide some initial guidance and expanded thinking when assessing Return On Investment (ROI).

ROI is typically measured by how many years it will take to save or earn the revenue invested in the technological solution (arithmetic return and logarithmic formulas are often used). First we will define measurement and some key steps, and then apply them to areas of potential return that are typically not measured, either accurately or at all.

Measurement is "to estimate or appraise by a criterion." Understanding how to measure is critical not only to ROI but to anything that can be evaluated from the perspective of improvement. In order for measurement to be effective five key elements must be present. (1) A goal or purpose for the measurement. What kind of improvement is desired and in what areas? (2) Key indicators. Focusing specifically on the goals established in (1) above, choose meaningful, key indicators. If improved downtime is the goal, key indicators might be the time from arrival to return to service. (3) Accurate key indicator data. Consistent and thorough data is mandatory to paint a clear picture. (4) Establish a baseline. Start measuring baseline data and create the baseline now. It will be too late to review and realize the ROI down the road without a beginning baseline. (5) Be sure to compare apples to apples (new versus old baseline) when evaluating the change or ROI.

RETURN - In addition to the financial return, let's consider some expanded areas of potential return, namely downtime, customer satisfaction, safety, regulatory compliance, efficiency, and accuracy. While none of these are new considerations in day-to-day operations, rarely are they included as potential areas of real, quantifiable return. And the reason for this is because of the measurement challenge they pose. Let's take two of these areas and illustrate how they can be effectively measured.

Customer satisfaction is a personal favorite because it is so often spoken of as being highly important or of number one importance. Yet it is rarely measured in any way that provides value. While there may be some obvious, objective data available, such as the number of repeat visits by a customer, this data is often limited and may not reveal, for example, that repeat business overall may be slipping (until it's too late). A basic customer survey can be an excellent tool for understanding many dimensions of satisfaction (as well as trends) while they can still be corrected. Some key attributes of an effective survey are: time it takes to complete, convenience in completing, and questions that provide meaningful feedback. Once the comprehensive survey data is available the information can be measured and trended.

Efficiency is an area of return that is generally lumped in with many other elements driving profit. While efficiency certainly impacts profitability, the many ways it does so can be broad and seemingly elusive. Take the example of a mechanic needing parts from inventory throughout the day. In a typical non-automated environment the mechanic looks up the part, writes it down, walks to the parts counter, and requests the part. A second person locates the part either by computer or walking to the bin and hands the part to the mechanic. Someone then updates the inventory quantity, issues the part to the work order, and ensures the price is correct.

This process typically takes a minimum accumulated time of ten minutes with several manual data entries. Using an automated system the mechanic can perform all the steps from a computer located at the aircraft; the part can be delivered to the floor or waiting at the parts counter. This process can take as little as two minutes with minimal data entry. When this time savings (which does not include the reduction and correction of data entry errors) is calculated based on the number of mechanics times the number of trips to the stock room, the efficiency gain can be significant. And, this is just one aspect of a process where an "efficiency" improvement might not even be identified, let alone quantified.

The next time a need for improvement is identified and ROI is under consideration, remember to set clear goals, identify key indicators, and start measuring. Technology can be an extremely powerful partner in the overall strategy for success. Jack Demeis is one of the founders and president of Continuum Applied Technology, makers of Corridor software, and is a career aviation professional with 24 years in the industry.