More to ROI than meets the eye: ROI is a term that has only recently made its way into the...

It's fair bet that a lot of readers to this column have never constructed a return on investment (ROI) calculation. If so, you may well be wondering why, as a creative you'd want to do so, such calculations being totally anathema to how you wanted your career to pan out.

Well you may

be lucky and never have to be involved with ROIs but increasingly your fellow professional are (you may also be one of those). Calculating a ROI for your investment in the technology may seem at first glance to be the dullest thing that you could consider doing. However, if you don't understand or implement correctly a ROI for your technology your business may hit problems that could mean that you don't have technology to be creative at all.

A new look at technology and workflow

Essentially, creatives need to transcend the old school attitude whereby technical budget was limited to buying new workstations, servers and editing suites and the basic strategy involved making sure that they all worked when they were switched on at the beginning of the day. Such technology is now recognised as an essential part of the fabric of the business as a whole and those charged with running them are increasingly being asked to understand how the technology is a fundamental element of the business as a whole.

The likelihood is that ROI is something that blokes in dodgy suits do and, admittedly there is a logical as to why that is. Even the most technically minded of those in the broadcast industry are schooled essentially in the operations and engineering of the facilities that they run. However companies are beginning to realise that they need to give their key staff, no matter how creative, the skill sets for which they can get a broader education in the financial implications of the world in which they work and the financial decisions which they have to take. This skill set needs to include not only information regarding calculating ROIs but also knowledge of business processes.

Such skills are by no means beyond the savvy of the average technical person in the broadcast industry, a point emphasised by Graham Hall, a consultant for Marquis Broadcast who specialises in the delivery of ROI tools for the broadcast industry. He commented: "many engineering technical people who went to colleges and university did a lot of mathematical study on waveforms and all of their mathematical ability is probably in excess of the average accountant but they are just not schooled in [financial matters]. It's just something that doesn't come across their desk."

The maths will inevitably be applied trying to figure out how to realise the maximum value from investments in technology. There are any number of tools on the market that profess to measure the return on investment (ROI) of broadcast technology and among this number is Marquis. Even though such products will employ a wide variety of mathematical techniques, ROI can be distilled into one poignant question: does the benefit delivered by the technology measurably outweigh the costs involved in delivering it?

Learning from IT

Such concerns have been an everyday part of the general IT industry and Granby Patrick, director of Marquis Broadcast Ltd, argues that the broadcast industry is at a stage where the whole industry is changing almost as a result of the convergence between broadcasting and IT. He comments: "Up until now it required an awful lot of magic from the chief engineer to actually make a TV station tick and the management hadn't really got involved or interfered in the aspects of how that is achieved; it's been a totally engineering based operation. Now that you have commodity hardware and soft ware doing an awful lot of the work in a broadcast environment, you can start applying some of the IT business analysis models to broadcasting that hadn't been done before. We're right now in a transition from a cottage industry to a real business"

The IT business models will be based on obtaining an overall view of the technology and the process of its operation. It generally includes looking at issues such as not buying technology on a piecemeal basis and generally ensuring that the technology investments are made in products that the business actually needs. ROI begins with realising that lower price tags do not automatically translate to lower overall cost of technology. IT analysts estimate that the upfront cost of technology products typically account for only a third of the total project costs. In the case of a small amount of the total solution costs and the most expensive element of the solution after the upfront investment is typically support costs. It may well be the case that you will need to pay third parties to support your technology because you don't have the resources or expertise to do these yourselves. This could work well-service providers and resellers could offer greater economies of scale and outsourcing support may be cheaper for businesses.

Calculating an ROI path is not as simple as it may seem. In fact it may be the case that the best way to get the best from your technology is to stop contemplating about the technology per se and to only think only in terms of your particular business problems and needs and most importantly how the technology bends itself to business goals. Once you identify this business goal, chart out the existing processes that are in place and consider how these may be improved.

This rationale may be second nature in the IT industries and could well be applied to broadcasting. Attests Granby Patrick: "IT people have spent a lot of time analysing how their software is used and what processes are involved so they can really understand the staff cost elements of using [technology] and they can they design a system to optimise that staff cost. That is what all the big IT projects are about; how do you automate the handling of documents of that you create and don't have staff pushing them around? Up until a few years ago broadcaster didn't really worry about how many staff they had pushing tapes up and down corridors. Now that you can put [video] in a file, you can make more or less what you want to happen in the background and design the system from the point of view of how we want to optimise what our people are doing." In other words you should be looking at what your staff is doing, and whether they are adding value, in a creative sense as much as anything, to the channel or the programme that they are working on and not doing the mechanical task that technology can be used for.

Technology exists that will help you make these calculations. Technology should help you design processes that let you see how long it takes staff to handle and process media and which steps in the process can be removed and reduced. Granby Patrick offers an example of this. "In tape based delivery of programmes to a playout centre, how much effort is involved in checking the tape, acknowledging what is on it, checking the contents of it, doing a QC of it? All of this has all been done by the company that sent it in the first place because. "His solution is simple: with file based transfer these problems go away but you should insist that your suppliers provide you with a programme to a set quality and that the file that they supply is self-checking.

Granby adds that the biggest problem companies face is not making the technology work but instead persuading staff to operate the system in the optimal way and not simply work in the way in which they are accustomed to. This is a perennial problem and has implications for return on investment. That is to say the investment in technology will never be realised properly if the people don't utilise it to its fullest potential. Yet it is traditional for the broadcasting industry to train its staff for products and not for processes. Given that employees are usually told to make tools work they will inevitably stumble into things and figure out the weaknesses of the system. This generally negative attitude to system optimisation begets work arounds and can cause operational inefficiencies.

A new way of thinking

So return on investment can be ensured by the correct operation procedures and you should be able to find a good supplier who can either deliver the tools that you need and the training to use them or a company who can do the whole thing for you as an outsourced project (but that's another story). The return on technology investment that you want is totally under your control and should not be dictated to you by the technology vendors or the suppliers.

Also in terms of planning, squeezing things only a little can bring big rewards. Says Graham Hall:"When you're involved in a big project with new technology, during the build up to implementation you spend a lot of efforts and cost to get the process up and running. So you should plan ahead to reduce these costs. If for example you go from 60/70 people to 50 with new technology, you may find that you could actually get this number down to 48. On the basis of a company working on a 24/7 basis for five to seven year period--typically what an investment analyst will look at--that [small reduction] amounts to tremendous amount of money."

Ultimately though it is still rare in the broadcasting industry to find people who have, or are confident, to have such conversations with suppliers. Yet the bottom line is, literally and metaphorically, that the industry has to embrace this new way of thinking. Those that do should reap a lot of benefits. Technology has to be aligned with the business need and this should govern the planning that should go into new tech investment. Says Granby Patrick:"l can buy a new tractor but if I drive in circles I won't get the benefit in the field.

ROI checklist

* Use a consistent method to calculate the benefits of technology

* Think of return on investment (ROI) in business terms. Refer to projects as the 'workflow service' rather than 'the new digital technology:

* Appoint one person who is accountable for each claim made in an ROI case.

* Consider the impact of a technology deployment on all aspects of the business, not just the department where it is being rolled out.

* Incorporate risk into your calculations. It may reduce the benefits of a project by more than ten per cent.

* Don't assume that time saved is money saved. This only works if you can usefully fill that time with profit-generating activities.

* Don't count cumulative benefits. Ten projects cutting costs by ten per cent don't result in 100per cent cost reductions.

* Don't build ROI models over ten-year periods. As a rule, three-to five-year analysis is appropriate.

Justifying IT investment

The fundamental question underlying any IT investment decision should be: is it worth it? A good investment is basically one where the total costs involved are lower than the measurable benefits. As a rough guide, follow these steps:

1 Any argument for investing in new technology should be based on a challenge, opportunity and need.

2 Map out how the technology will be implemented. Who will be affected? What will be the operational impact? Are there alternative, better plans?

3 What are the capital costs of your hardware or software, including initial purchase price and future upgrades, over a three-or five-year lifecycle?

4 What are the costs involved in ongoing maintenance and operations, including IT staff and services, for deployment, plus the cost of supporting and training your users over the lifecycle?

5 What are the total administrative costs involved in buying and managing the technology for your IT department?

6 What impact will the technology have on operational processes? Will it impact the cost of relationships with your customers or suppliers?

7 What impact will the technology have on your bottom line profitability? Look for impact on user productivity, in terms of a measured increase in your ability to produce goods or fulfil orders

8 How will the technology allow your company to cut back resources or administrative functions?

9 Will the technology enable your business to enter new markets or increase market share through improved quality?

10 Can the expected benefits to your business be expressed in terms of being SMART: Specific, Measurable, Achievable, Realistic and Timely?

Source: Giga Information Group, Ernst & Young