Determining the ROI of Your Software Integration

If you’re considering software integration, you already realize the potential benefits: boosted productivity, agile infrastructure, dynamic data, streamlined processes, reduced overhead, etc.

These benefits — while worthwhile — are abstract. Ambiguity is not your friend when you’re trying to justify an investment in integration.

So, what’s a business guru to do? Determine the true ROI to your business.

This is important not only as “proof” of the effectiveness of integration, but as justification to yourself for why integration is a necessary next step.

The basic formula for ROI is:

          Benefits –  Investment(s)
ROI =         ________________________

           Investment(s)

Unfortunately, determining the ROI of an integration project isn’t as straightforward as this equation. The challenge with integration lies in its complexity. No two integrations are the same. Investments and benefits depend on the intricacy of your project, the level of functionality you’re looking for, the number of complex fields you need, etc.

It’s also important to consider the criteria you’re using for quantifying the benefits. For example, time savings can be calculated as a tangible benefit of integration. How many hours per week is your IT staff working between systems? How many of those hours would be saved with integration? How is that time calculated into salaries or hourly compensation?  If you know your IT team will save 10 hours per month, what is that worth in terms of the cost to the company? That time is now freed up for the team members to focus on other tasks that may be more financially lucrative, but how MUCH more?

So many factors come into play that it’s hard to tell where to start. The best way to reveal the true ROI is to assess it from two angles:

1. What will the ROI look like for the IT team?
2. How will the ROI be reflected for the organization as a whole?

Splitting your analysis into these two categories simplifies the approach to calculating ROI by breaking it down into the major areas of the business it will impact. Let’s look at each.

Integration ROI for IT

If all goes according to plan, a proper integration will ease the pains of your IT department. The IT costs related to an integration exist within a few categories:

1. Infrastructure Costs: Software licensing, middleware, additional hardware, etc.
2. Cost of Services: Trials, third-party vendor services, customizations, vendor selection process, time spent creating RFPs (request for proposal), reviewing RFPs
3. Staff Resources: IT staff building custom adapters, coding and modifying programs, creating workflows, updating industry standards in systems, tracking and resolving issues, doing performance monitoring, etc.
4. Buildings Teams & Skills: Hiring experts in integration/middleware, training current IT team

Licensing and services costs will vary by integration provider, and depending on the complexity of the integration, the services costs can be much greater than the cost of the integration solution itself. When calculating the ROI for IT, consider the holistic view of costs that includes licensing the software, services, operational costs like training and labor of your IT team, and administrative costs like maintenance and ongoing support. These are your investments.

Review those investments and calculate the estimated time and resources saved (aka your benefits) to understand how the integration will affect IT ROI. Some benefits to consider in your calculations might be:

1. Reducing the # of developer hours spent on support and maintenance
2. Reducing any redundancies you may have in middleware, software licenses etc. that are no longer needed
3. Standardizing processes – how much time will that save?
4. Faster coding of new and existing processes
5. Adherence to government data regulations
6. Multichannel transactions streamlining time to deployment for some tasks

Integration ROI for Business 

Once you have a handle on your IT ROI, it’s time to look at the ROI for the business itself. These costs can be more difficult to calculate because they involve both short-term and long-term investment considerations. Business costs are the investments that make the integration beneficial. Although these costs may differ from business to business, a few general examples include:

1. Time Investment: Transitioning processes and training teams, edits to organizational structure
2. Outside Investments: Technology & training costs for external partners connecting to integration
3. Opportunity Costs: Loss of revenue due to late offerings on the market, lost sales during transition period, lost productivity due to system down time

What are the measurable benefits of an integration project? We need to understand how these are represented to factor them into the ROI equation. As with the investments, these can be difficult (but not impossible!) to quantify. Consider some of these examples as you contemplate the benefits for your organization:

1. X percentage of increased customer retention due to integration/automation of end-user touch points
2. Uncovering X number of profitable cross-sell/upsell opportunities via new data transparencies
3. Improved workflows and better self-help capabilities resulting in X minutes of time saving for hands-on support time
4. Using alignment and automation for product delivery X percent faster
5. Faster reaction time for services inquiries by X minutes
6. X times faster customization of products/services/information for customers
7. X hours saved on manual data entry

If an employee enters data for 2 hours per day for 260 days per year (at a cost of $20 per hour) that comes to more than $10,000 annually spent on manual data entry. WHOA. When you crunch the numbers, it's easy to see how the benefits can outweigh the costs of an integration. 

Intangible Value is Still a Driver

Although it’s important to justify the tangible ROI of an integration, it’s also crucial not to lose sight of the intangible value it adds to the organization. The long-term benefits to the corporate image, the intellectual capital gained, the destruction of data silos, and the improved agility are all part of the case for integration.

These intangible benefits help the business grow over time and provide better experiences for customers and partners alike. Their affect ripples throughout the entire organization and influences every future endeavor. Just remember: an integration’s ROI is more than the sum of its parts.

For help with your next integration, contact our team! We'll help you break down the aspects of each system you must connect to maximize your investment.