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Quantifying Return on Investment for ECM: A Methodology

A Doculabs White Paper

2009 Doculabs, 200 West Monroe Street, Suite 2050, Chicago, IL 60606 (312) 433-7793 info@doculabs.com. Reproduction in whole or in part without written permission is prohibited. Doculabs is a registered trademark. All other vendor and product names are assumed to be trade and service marks of their respective companies.

Table of Contents
1. Introduction 2. Whats the Best Way to Quantify the Potential Impact of ECM within an Organization? 3. Doculabs Methodology 4. Sample Business Cases 5. Closing Recommendations 6. About Doculabs
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Introduction

iven the volumes of unstructured information in organizations today, it should be easy to make the business case for technology initiatives that can help get that information under control. Enterprise content management (ECM) technologies and processes are designed to do exactly that: to capture, manage, archive, and deliver information, both within and outside organizational boundaries. It should be easy but its not. Doculabs knows from experience that organizations struggle when it comes to effectively quantifying the return on investment in ECM. We see many organizations facing significant content management challenges, but which nonetheless cant seem to allocate funding for ECM initiatives whether for targeted projects affecting specific business processes or for infrastructure initiatives designed for enterprise-wide deployment. The reasons vary. Sometimes its because IT has too many other high-priority projects on its plate. In other organizations, ECM may have a bad track record from projects that either went over budget, or over time, or that achieved adoption rates far lower than the initial projections. But many ECM initiatives dont get funded or dont get fast-tracked for the simple reason that IT cant make the business case for ECM. Too often we see business cases that fail to quantify the hard-dollar returns, or that suffer from gaps in cost data, or that are based on ROI models that are less than complete. Then an already weak business case gets buried in spreadsheets, and ECM gets sidetracked yet again for lack of executive buy-in.

Let there be no doubt: There is a business case to be made for ECM technology. Consider that 80 percent of the information within an organization is unstructured: word processing files, email, spreadsheets, web content, images, graphics, and all the other digital assets that get created for use in business processes. In most organizations, fully 90 percent of this unstructured information goes unmanaged, and industry estimates are that this unmanaged information is growing at a rate of 36 percent per year.

Figure 1: Problems Making the Business Case for ECM

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But the picture gets even more complicated. Organizations are becoming more distributed than they were in the past. As a result of globalization, cross-continent, cross-culture, multi-language, hypercollaboration environments will soon be the norm, if they are not already. Furthermore, the business environment is subject to increasing regulation, and is also becoming increasingly litigious. In the U.S., post-Enron regulatory changes have mandated that organizations regard information management as an essential part of running their businesses. Whether you consider it from a compliance and litigation viewpoint, through a cost-cutting lens, or from a productivity enhancement perspective, ECM technology is an integral component of the IT infrastructure within an organization. In the current economic climate, however, its imperative to demonstrate hard returns for any IT initiative, including ECM. In many organizations, that also means determining the ranking of ECM relative to other requests for IT spend, in order to prioritize the order of spend in the area of content and process management. Finally, its absolutely critical to package the message so that the impact of the ECM initiatives you propose will be clear to executive management. Bottom line: If you cant demonstrate the value of ECM within 10 minutes in an executive presentation, the chances are the funding will (once again) go to other projects that do show the hard returns. So how do you make a credible business case for ECM particularly when ECM has to compete with a multitude of other requests for IT dollars?

In this white paper, Doculabs provides the best practices and approaches you need to justify ECM-related expenditures. We also present Doculabs Business Case Modeling Framework, a methodical approach that we have used to assist organizations in developing ECM-specific business cases that demonstrate hard and soft returns for executive management. Doculabs has the tools that can help you make the case for ECM in your own organization.

To learn more about Doculabs Business Case Modeling Framework Doculabs has developed a Business Case Modeling Framework a methodical approach designed to assist organizations in developing ECM-specific business cases that demonstrate hard- and soft-dollar returns for executive management. To learn more about this service or our other contentand process-related consulting services, visit the web site at www.doculabs.com, or call (312) 433-7793.

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Whats the Best Way to Quantify the Potential Impact of ECM within an Organization?

T
Targeted Initiatives

he figure below shows some typical areas of spend for ECM. Note that we break them down by targeted initiatives ECM projects designed to address specific business problems or areas of ECM functionality versus infrastructure initiatives, which we consider to be initiatives affecting the entire enterprise.
Customer Communications Management Digitization / Process Automation

approach is taken. When putting together a business case, you should consider your approach based on the organizational culture, the appetite for spend, the maturity level of ECM, and the enterprises overall familiarity with the potential value that ECM can bring. While an infrastructure investment makes a lot of sense in certain instances, other organizations might find a targeted initiative a more favorable approach, given their funding constraints. In still other organizations, proving out targeted value might be the first step toward justification of an infrastructure-related spend for ECM. A business case should have a specific focus, based on your organizations business priorities and its stated corporate business goals. So familiarize yourself with the content of the organizations annual report. Know what your organizations business priorities are, and tailor your business case accordingly. It will also help to define the type (and level of detail) of data you will need to gather to support your business case. Also make sure you know what initiatives both major and minor, both ECM and non-ECM are in the IT pipeline. That information will show you where ECM may be competing for funding, but it can also show you other initiatives that might potentially benefit from ECM capabilities, where you could tap into the budgets of other active projects. When putting together the business case for any of these types of initiatives, consider the categories of benefits, classes of business cases, expense category emphasis, and worker types that will be impacted by your proposed initiative. The subsections on the following pages discuss each of these areas in detail.

eDiscovery and Compliance

SharePoint Co-existence

Contract Management

Email Management

Other Horizontal Initiatives

Other Industryspecific Initiatives

Infrastructure Spend

Enterprise-wide Deployment

Figure 2: Typical Areas of ECM Spend

The significance of the demarcation between targeted initiatives, whether industry-specific or cross-industry, compared to infrastructure-related initiatives, is that the sources of funding tend to be different. Furthermore, an organizations stage of maturity within the ECM lifecycle at a given point in time may dictate which
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Benefit Categories
Ask yourself: Which benefit category (or categories) align most closely with your organizations corporate business goals? These are the benefits that are most likely to get the attention of executive management. Evaluate your proposed initiatives by how well they fit your organizations business priorities, and prioritize and present them accordingly.

Revenue lift: Benefits that help the organization increase revenues.

(Example: customer communications technologies that integrate with LOB systems, allowing for cross-selling and up-selling to existing customers)

Business continuity: Benefits that improve the organizations

Risk mitigation/compliance: Benefits that improve the

ability to ensure that mission-critical functions and services can continue uninterrupted during and after a disaster. (Example: imaging technologies and mirroring of repositories to ensure up-to-date copies of business-critical documentation and data are maintained in geographically dispersed locations)

organizations ability to reduce corporate risk or facilitate its ability to comply with regulations (Example: records management technologies that make it easier to manage discovery-related information in the event of litigation)

Transformative: For organizations in the public sector, benefits that


allow a government department or agency to provide information to its constituents in a timely and accurate manner. (Example: imaging and e-forms technologies to digitize documentation and enable timely response to Freedom of Information Act requests)

Cost reduction: Benefits that decrease the hard-dollar costs of

business processes (Example: imaging and e-forms technologies to reduce the amount of paper in business processes)

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Classes of Business Cases


Next, consider the various classes of business cases. As the examples suggest, there are different circumstances in which each class is appropriate:

Top-down vs. Bottom-up: A top-down business case is typically an


organization-wide business case that highlights macro-level ECM benefits at an enterprise level. These tend to be credible only for hourly wage/variable capacity types of workers, where capacity planning can be directly affected with even minor efficiency gains. (Example: Making information more easily accessible to customer service reps in call centers throughout the organization, thereby reducing time required to service calls)

Retrospective: The retrospective business case focuses on analysis

of a particular event or scenario and demonstrates how the outcome would have been different if ECM technology were in place. (Example: an instance of litigation discovery, showing the actual costs of the discovery event and the cost reductions with ECM technologies in place)

Embedded: This class of business case focuses on demonstrating

Bottom-up business cases, generally a more credible and more successful approach, tend to be more precise for knowledge workers and also work rather well on the process worker-related activities and tasks, where certain patterns tend to recur in many areas. Not only can a particular line of business benefit from a process-level drilldown, but those same ECM usage patterns can be applied to other processes with similar characteristics. (Example: New Account Origination optimization through imaging, e-forms, and workflow, which presents usage patterns similar to Retail Mortgage Processing)

the ability of ECM to enable an existing and already funded initiative, where ECM acts as an enabler for the in-flight effort. (Example: Using the document management and records management capability sets of ECM to enable archiving for an ERP initiative that is already funded and underway)

Reformative: The reformative business case tends to highlight the

Reallocative: This class of business case focuses on reducing costs


from one area and allocating the savings to another area. (Example: Suppressing print for customer communications and reallocating those savings for modernizing the personalization platform for electronic customer communications)
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structural, business model-related or highly strategic changes that require aspects of ECM in the critical path. (Example: A business model, such as outsourcing, that the organization seeks to pursue, where ECM technologies such as digitization and process automation are prerequisites for undertaking a distributed sourcing environment)

Expense Category Emphasis


Your business case should also take into consideration the category of business expense into which your organization is likely to classify your proposed ECM initiative: as a capital expense or as an operating expense. The reason this is important is that in certain organizations, funding is materially easier in one category over the other, depending on the organizational priorities and macro trends that dictate the business climate at the time. Some prefer capital expenses over operational expenses, and others the reverse. A further factor to consider is how the costs for ECM implementations (both initial and ongoing) are allocated across the business. Its important to consider a fair and equitable allocation of costs to incentivize adoption across the organization. This is in contrast to what typically occurs in most organizations, where the first business unit to volunteer for ECM functionality incurs a vast majority of the initial costs. This inequitable allocation of costs is a disincentive for adoption, and the result is a deployment that gets off to a slow start. A better approach in large infrastructure projects is simultaneous deployment of multiple projects over a longer time period, where IT carries the costs on its books. This approach can then be coupled with chargeback strategies where basic functionality for ECM can be provided for a low cost, and more advanced functionality is provided with a value-based pricing model from IT to the business.

Worker Types
Finally, as you craft your business case, consider the general type (or types) of worker your proposed ECM initiative is likely to impact.

Process worker: Its easier to calculate costs (and therefore hard-dollar benefits) because benefits

will be measurable in terms of unit costs; its also easier to enforce utilization, because ECM will likely interface with process workers LOB systems. Yet many process workers dont make full use of the available ECM functionality, which means the investment goes underutilized and the potential benefits arent realized. nature; its difficult to quantify hard-dollar benefits. It can also more difficult to attain end-user utilization, because ECM tends to be an adjunct to knowledge workers existing applications. Adoption is also a critical hurdle; most knowledge workers need to be convinced of the business benefits ECM provides (and they can devise ingenious work-arounds if you fail to convince them of those benefits).
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Knowledge worker: Benefits that impact knowledge workers are more likely to be soft-dollar in

Doculabs Methodology

oculabs has developed a Business Case Modeling Framework a methodical approach designed to assist organizations in developing ECM-specific business cases that demonstrate hard- and soft-dollar returns for executive management. Following are the steps:
Criteria Description

Define Criteria: Evaluate existing business processes for potential benefit from ECM (i.e. revenue lift, risk mitigation/ compliance, cost reduction, business continuity), using a set of defined criteria. See table on this page for sample criteria. Prioritize Processes: Assess the potential impact of ECM on each business process and prioritize processes, using your defined evaluation criteria. Depict the Current State: Create a view of the current process, applying current-state metrics and facts. Include data specific to your organization (costs, volumes); supplement with industry benchmark data in areas where your own data is incomplete. Where possible, also include an analytic/ heuristic model that shows how other organizations in your industry approach the process. Project the Future State: Develop a view of the desired future state with estimates of the improvements enabled by deployment of ECM technologies. Use industry benchmark data to project the costs of the future state. Quantify the Benefits: For each process, aggregate and analyze the hard and soft benefits (i.e. revenue lift, risk mitigation/ compliance, cost reduction, business continuity). Communicate and Socialize: Perhaps the most important step of all, when it comes to obtaining executive buy-in. Develop an effective communications model and socialize it with the executive team. Doculabs recommends developing an interactive visualization of the business case to communicate the business case graphically, in a succinct, easy-to-understand format.

Business Priority

Assessment of the level of priority that the requesting business unit has placed on the project request or initiative Evaluation of how the project request aligns with the organizations major strategies or stated goals The relative level of benefit that can reasonably be expected to be portrayed by the process analysis work The areas of the business that will be impacted if the scenarios are automated General complexity of the process

Strategic Alignment

Magnitude of Potential Return

Impact of Potential Return

Process Complexity

Visibility

Identification of how visible the scenario is from an enterprise perspective

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Sample Business Cases

ollowing are two business cases developed using Doculabs Business Case Modeling Framework, showing examples of interactive visualizations as a tool for communicating and socializing the business case to executive audiences.

Compliance Initiative: E-Discovery ROI Model


Problem: Repetitive and high costs of producing documents for litigation discovery Category of Investment: Targeted initiative Addressable Audience: Legal Approach for ROI: Retrospective, using organization-specific and industry data Key Benefits: Improve management of potentially discoverable information and reduce the volume of case-specific discoverable information that requires costly legal review Potential Pitfalls Avoided: In many cases, organizations dont justify a proactive effort for use of ECM in e-discovery largely because they have not yet faced a major and costly litigation. This business case demonstrates how a few changes in variables in a past experience can dramatically change the cost and risk implications for an organization, thereby justifying the use of ECM as part of a proactive approach.

If you would like have Doculabs present the interactive visualization of this data please contact info@doculabs.com Page 8

Infrastructure Example: Shared Services ROI Model / System Rationalization


Problem: Inability to achieve high rates of adoption for ECM; inability to roll out ECM functionality efficiently Category of Investment: Infrastructure Addressable Audience: IT and LOB executives Approach for ROI: Top-down and reformative within IT and from a time-to-deployment perspective Key Benefits: Improved ability to target ECM functionality to the needs of different users groups; improved efficiency in rolling out ECM functionality. This factory-based shared services approach instills a repeatable process within organizations that can result in 4to 6-week implementation times. Potential Pitfalls Avoided: Many organizations invest in ECM, but are unable to rapidly provision applications and achieve broad-based adoption of ECM. Without a well-defined implementation approach and strategy for ECM, approximately 50% of organizations will incur cost overruns, long times to deployment, and low adoption rates. A shared services approach dramatically reduces these inefficiencies and can lead to 30 to 40 percent improvements in deployment efficiency, compared to a one-off implementation approach.

If you would like have Doculabs present the interactive visualization of this data please contact info@doculabs.com

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Closing Recommendations

oculabs has helped many organizations develop business cases for ECM with both targeted initiatives and infrastructure initiatives. As you begin to make the business case for your own ECM initiatives, keep the following recommendations in mind:

1. The basis of a credible business case is relevant, organization-specific data on the costs, volumes, and other metrics around your current business processes.

Identify Low-Hanging Fruit: Determine the areas of opportunity

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for ECM that have a high probability of potential return. Look at the benefit categories and determine which ones apply.

Select Modeling Approach: Agree upon the modeling technique

and combinations i.e. the top-down vs. bottom-up, reallocative, retrospective, embedded, and reformative models discussed in this white paper.

Many organizations dont compile these metrics; the data simply dont exist. And even if it does exist, you might not have a relative comparison of the severity of the issue. Doculabs recommends using a model that uses not only internal organizational data, but also industry benchmark data.

Leverage Best Practices: Use proven logical models and industry

benchmark data to support your business case, and use visualization models to communicate your business case to executive management.

3. The data then needs to be applied to the analytic and heuristic models, with the right logic, assumptions, and parameters to help you create defensible scenarios to demonstrate how your proposed initiative will provide quantifiable returns on investment, not just an enumeration of the soft benefits. 4. The most critical piece of the business case is calculating an ROI and then communicating it to executives in sophisticated yet easy-tounderstand visual and interactive models. A business case should always be able to present what-if analysis, showing causes and effects resulting from changes in assumptions. Finally, a good business case should be simple enough to review in a few minutes with an executive audience, but still display the robustness of the analysis.

Use a Hybrid Model: Use your organizations specific data in as


many places as possible and compare to industry averages.

Use a Proven Business Case Modeling Framework: Doculabs

provides consulting services in business case development, using its Business Case Modeling Framework. As you prepare to develop a business case, consider the design goals listed to the right to ensure success of the effort.

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About Doculabs
Doculabs, Inc., is a consulting firm that focuses on strategic issues associated with content management and related technologies. Founded in 1993, Doculabs recognizes that managing unstructured content is fast becoming a major business priority. Doculabs has an established track record in helping its clients develop strategies for bringing content under control. Doculabs understands the technologies and the applications at both ends of the content management spectrum, from the simple to the complex. For more than 10 years, Doculabs consultants have helped clients identify their specific content management requirements and the technology applications of greatest business benefit. Most important, our recommendations are completely objective. Because Doculabs does not sell software or integration services, you can be sure that our content management recommendations will truly meet your specific needs. Hundreds of leading organizations within the Fortune 1000, as well as federal, state, and municipal government agencies, have turned to Doculabs for assistance with their content management strategies, including ways to help them make effective use of ECM technologies as part of their compliance programs. For more information about Doculabs, or for further information on the Business Case Modeling Framework presented in this document, visit the web site at www.doculabs.com or call (312) 433-7793.

200 West Monroe Street Suite 2050 Chicago, IL 60606 (312) 433-7793 www.doculabs.com E-mail Doculabs at: info@doculabs.com

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