The Return on Investment of my Digitalization Project, Step by Step
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The document outlines a step-by-step guide for quantifying the costs and benefits of a digitalization project, using a hypothetical business scenario. It details the costs associated with a current paper-based filing system, estimates savings from transitioning to a digital system, and calculates potential return on investment (ROI) over five years. It emphasizes the importance of selecting efficient software and hardware solutions to maximize savings and improve processes.
The Return on Investment of my Digitalization Project, Step by Step
- 1. understanding documents The Return on Investment of my Digitalization Project, Step by Step Quantifying the benefits and real costs of a digitalization project is the first step to take when you decide to make the investment in a digitalization project. In these pages, we will guide you, step by step, through the process. 2013, March
- 2. understanding documents Defining the context To explain the calculations that you should carry out, we’re going to propose some data. These figures are for demonstrative purposes, but they also try to be as close to reality as possible. DATA Size of the business: 50 people Documents managed per day: 100 documents Number of filing cabinets: three cabinets Dimensions of cabinets: 41cm wide, 104 cm tall, 50 cm deep Number of people who work with these documents: two people Number of people who have to find documents to carry out their day-to-day work: 10 people NB: All of the workers in this example earn the legal minimum salary of 641.10 € in Spain. STEP ONE: Determine the costs of the current system Calculate the real costs of maintaining your current paper-based filing system. Keep costs like these in mind: COSTS ARISING FROM WORK Monthly salary Prorated extra payments Base for Extra Expenses Social Security Costs (32% of base salary) TOTAL MONTHLY COSTS PER WORKER Price per hour of work Price per minute of work Number of documents processed per day Average time (in minutes) spent processing each document** Labor cost per document Daily labor cost of processing documents Annual document processing costs (220 working days per calendar year) 641.10 € * 106.85 € * 747.95 € 239.34 € 987.29 € 4.11 € 0.07 € 100 6 0.41 € 41.14 € 9,050.20 €
- 3. understanding documents * - Costs specific to workers in Spain. This assumes that the worker in the example is earning the legal minimum salary; Social Security costs can range from between 32% and 35% of base salary. ** - Time estimated is taken from a Price Waterhouse Coopers study of the time it takes one person to file a paper document in a well-organized filing system. COSTS ARISING FROM STORAGE This calculation of the square meters needed includes the space to open the drawers of the filing cabinet. * - Average price per square meter in Madrid, Spain, in 2010, according to Cushman & Wakefield Real Estate Consultants. COSTS ARISING FROM LOOKING FOR AND LOCATING DOCUMENTS Number of people who have to search for documents every day Average number of documents searched for each day Time taken to find a document each day (minutes) Average number of documents lost each month Time spent finding a lost document (minutes) Time spent per month finding lost documents Cost per minute of work Daily cost of looking for documents Annual costs of looking for documents (based on an typical working year of 220 work days) Monthly cost of locating lost documents Annual cost of locating lost documents Total costs arising from looking for and locating documents 5 10 6 6 10 60 4,620.00 € 0.07 € 21.00 € 4.00 € 924.00 € 5,544.00 € Square meters occupied by a filing cabinet Number of filing cabinets Average monthly price/sq. meter of office rental space (*) Monthly storage costs Annual storage costs 0.3075 3 29.00 € 26.75 € 321.03 €
- 4. understanding documents COSTS TO MAINTAIN THE CURRENT SYSTEM Annual document management costs Annual storage costs Total costs arising from looking for/locating documents Total annual costs for the current paper-based system 9,050.20 321.00 € 5,544.00 € 14,915.23 € To simplify cost calculations, we have not included the cost of having, in many cases, to go back and re-create or recover a document that’s been lost (for example, getting in touch with a vendor to see if he can send us a copy of an invoice, or having to re-do a report that’s been misplaced, etc.) Nonetheless, it would be interesting to do some more detailed number-crunching to see just how much money lost documents are costing you. Even by just including these costs, we can get a better idea of how much it costs your business to continue to work with a paper-based model. STEP TWO: Estimating the benefits of the new system Make a calculation of the benefits that your business would get from a new digitalization system. Remember that, to pick a system that is best suited to your needs, you will have to think about a multitude of factors, such as the kinds of documents that you want to digitalize (structured or not structured), if you want to digitalize groups of documents, what processes you want to automate and the degree of precision that the tool offers you. We will assume that our imaginary business chooses a system such as Athento for storage and capturing information, together with a Fujitsu fi6130 scanner that can digitalize forty to eighty pages per minute. That’s not small change if your business has to pay that, year in and year out. “Managing paper documents is costing your business approximately 14,915.23 € every year.”
- 5. understanding documents CHARACTERISTICS OF ATHENTO – DOCUMENT CAPTURE Automatic classification of documents (accuracy rate) Data extraction (accuracy rate) 98% 98% With the new system, each new document would undergo the following process: - One person is in charge of putting the documents in the scanner. - Athento receives the documents in a monitored file. - Athento applies the semantic technology (and other technologies) to recognize each document within the monitored file. - Athento extracts information that is relevant to each type of document. - Athento digitally saves each document in the site that is relevant to what document type it is. As you can see, in the case of Athento, the only thing you need one person to do is to feed the documents into the scanner. This is one of the crucial factors that needs to be quantified. Another fundamental factor is the accuracy rate, because if the system cannot recognize a document or extract its data, someone has to carry out the process manually. So, first, let us calculate the time that two employees would need to use the system to manage documents: COSTS DERIVED FROM WORK Price per second of work Number of documents processed per day Time (in seconds) it takes one person to feed documents into the scanner * Time (per day) used to scan documents Daily costs of scanning documents Accuracy rate of system extracting data Documents in which data extraction could fail (2%) Time spent on re-entering data manually (min) Time spent (per day) on re-entering data manually (seg) Cost of re-entering data manually 100 37,5 0.04 € 98% 0.21 € 2 1,5 180 0.00116666666667 € 37,5
- 6. understanding documents Accuracy rate of system that classifies documents Documents which have to be manually classified (2%) Time spent classifying a document manually (in seconds) Time spent (per day) classifying documents (in seconds) Cost of classifying documents Daily cost of scanning documents Daily cost of re-integrating data Cost of classifying documents Total costs derived from working with the new system 98% 2 25 50 9.63 € 46.20 € 12.83 € 0.06 € 68.66 € Square meters occupied by each filing cabinet Number of filing cabinets Average monthly square meter rental price * Monthly storage costs Annual storage costs 0.3075 € 0 € 29.00 € 0.00 € COSTS DERIVED FROM STORAGE 0.00 € * Since digital information storage does not require any physical space, this cost is reduced to 0.00 €. * - This time is calculated with a base of 80 documents, which is the maximum number of documents that the scanner can process in one batch. A person usually takes 30 seconds to feed a batch of 80 documents into a scanner. Data extraction and manual classification is based on the accuracy rate, and if the system works well only 98% of the time, a person will be required to manually do the work 2% of the time. Let’s continue to consider other benefits. This time, we’ll look at those costs that we can eliminate when we eliminate physical storage. BENEFITS Cost reduction for time saved in manual labor: 8,981.54 €
- 7. understanding documents Cost reduction (labor and time spent) per year Cost reduction (physical storage space) 8,981.54 € $321.00 BENEFITS Athento uses a feature called Autotagging which reduces the time spent searching for documents by keeping them accessible and grouped according to categories in a cloud of tags. Finding documents this way reduces search times to an average of fifteen seconds per document. Let’s calculate the cost savings using this document search tool: COSTS ASSOCIATED WITH DOCUMENT SEARCHES Number of people who have to search daily for documents Average number of documents searched per day Time taken to find a document electronically, in seconds Total daily time (in seconds) spent searching electronically for documents Average number of documents lost every month Time taken to find a lost document (in seconds) Average amount of time (in seconds) spent searching every month for lost documents Daily cost of searching for documents Monthly cost of searching for documents Yearly cost of searching for documents TOTAL COSTS ASSOCIATED WITH DOCUMENT SEARCHES Cost per second of work Annual cost of searching for documents (based on an average work year of 220 days) 5 10 15 750 10 0 0.00116666666667 € 0 0.88 € 0.00 € 192.50 € 0.00 € 192.50 €
- 8. understanding documents BENEFITS Cost reduction for work time saved Cost reduction for storage space saved Cost reduction for document searches TOTAL ANNUAL COST SAVINGS 8,981.54 € 321.00 € 5,352.00 € 14,654.54 € STEP THREE: HOW QUICKLY WILL WE GET OUR ORIGINAL INVESTMENT BACK? Now we’re closer to being able to calculate the ROI on our digitalization project; but before we do that, we’ve certainly got to know how much money we’ll be investing. ATHENTO iDM Package Athento iDM Athento Capture Implementation 1st year support Hardware Fujitsu fi6130 Scanner Server equipped with the necessary requirements FIRST-YEAR INVESTMENT* 23,000.00 € 14,000 € 9,000 € 3,197.90 € 2,000.00 € 28,197.90 € * While contracting a multi-year support service program is not mandatory, it’s strongly recommended for the years following the original investment. These prices serve as a guideline and could vary according to the different components added or to specific development requirements. Once we know the total amount of the investment, we will be able to calculate the rate of ROI. Let’s do that now, using a maximum period of time of five years. INVESTMENT With a new Athento-based document system, the business would reduce spending by 14,654.54 €.
- 9. understanding documents ROI/Description Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL Savings Generated by the Project Cost reductions – time saved, labor Cost reductions – storage Cost reductions – document searches Total savings generated by the project Project Costs ATHENTO iDM Package FUJISTU fi6130 Scanner Support Total costs generated by the project Progression of cost savings per year Server equipped with necessary requirements 7,858.85 € 280.88 € 4,683.0 € 12,822.73 € 23,000.00 € 3,197.90 € 2,000.00 € 0.00 € 28,197.90 € 3,800.00 € 3,800.00 € 3,800.00 € 3,800.00 € 3,800.00 € 15,200.00 € 2,000.00 € 3,197.90 € 14,654.54 € 14,654.54 € 14,654.54 € 14,654.54 € 71,440.89 € 5,352.0 € 5,352.0 € 5,352.0 € 5,352.0 € 26,091.0 € 321.0 € 321.0 € 321.0 € 321.0 € 1,564.88 € 8,981.54 € 8,981.54 € 8,981.54 € 8,981.54 € 43,785.01 € 23,000.00 € 3,800.00 € 3,800.00 € 3,800.00 € 43,397.90 € -15,375.17 € -4,520.63 € 6,333.91 € 17,188.45 € 28,042.99 € 28,042.99 € In these calculations, we have also considered that it takes a month and a half to bring Athento up to full ope- rational capacity. As such, the savings generated during the first year are calculated on a base of 10.5 months. These data show that our example company would recoup its investment starting from Year 3. At the end of the Year 5, you will have saved more than 28.000€. ROI
- 10. understanding documents Total savings generated by the project Total costs generated by the project Return on Investment (over five years) Year ROI payback takes effect 71,440.89 € -43,397.90 € 64.7% RESULTS Year 3 Price per second of work Number of documents processed per day Time (in seconds) it takes one person to feed documents into the scanner* Daily costs of scanning documents Accuracy rate of system extracting data Documents in which data extraction could fail (2%) Time (per day) used to scan documents 0.00116666666667 € 100 37.5 37.5 COSTS DERIVED FROM WORK 0.04 € 98% 2 An 64% return on investment means that we’ve made a great investment, not just getting the money invested back, but also producing profit, too. The solution I choose DOES affect my Return on Investment Finally, we’d like to point out that not all digitalization projects are going to deliver the same results. Many factors can affect the performance of the project; and, without a doubt, one of those factors is the decisions that we take regarding technological acquisitions. That is not because different hardware or software solu- tions have different prices. Rather, it is because not all tools are equally efficient – and this is especially true when it comes to software. For example: had we chosen a document manager such as Nuxeo, together with a capture application such as Ephesoft, it would take us 45 seconds longer to find a document whose exact data we do not know or do not have, and the auto-classification process of tools such as these only provides an efficiency rate of 75%. If we consider that all of the other factors stay constant (costs associated with the previous system, the price, time needed to implement the solution), the benefits would be reduced. Let’s take a look:
- 11. understanding documents Time spent on re-entering data manually (min) Time spent (per day) on re-entering data manually (seg) Cost of re-entering data manually Accuracy rate of system that classifies documents Documents which have to be manually classified (2%) Time spent classifying a document manually (in seconds) Time spent (per day) classifying documents (in seconds) Cost of classifying documents Daily cost of scanning documents (220 working days per year) Daily cost of re-integrating data Cost of classifying documents Total costs derived from working with the new system 1.5 180 0.21 € 75% 15 25 375 0.44 € 9.63 € 46.20 € 96,25 € 152.08 € As you can see, this new system produces less savings related to costs derived from work. Now, in the following table we will consider the cost associated with document searches.
- 12. understanding documents COSTS ASSOCIATED WITH DOCUMENT SEARCHES Number of people who have to search daily for documents Average number of documents searched per day Time taken to find a document electronically, in seconds Total daily time (in seconds) spent searching electronically for documents Average number of documents lost every month Time taken to find a lost document (in seconds) Average amount of time (in seconds) spent searching every month for lost documents Daily cost of searching for documents Monthly cost of searching for documents Yearly cost of searching for documents TOTAL COSTS ASSOCIATED WITH DOCUMENT SEARCHES Cost per second of work Annual cost of searching for documents (based on an average work year of 220 days) 5 10 60 3000 10 0 0.00116666666667 € 0 3.50 € 0.00 € 770.00 € 0.00 € 770.00 € As in the case of costs derived from work, savings associated with document searches are lower compa- red to the savings produced by Athento. Now, let’s calculate the ROI with the new system.
- 13. understanding documents ROI/Description Year 1 Year 2 Year 3 Year 4 Year 5 TOTAL Savings Generated by the Project Cost reductions – time saved, labor Cost reductions – storage Cost reductions – document searches Total savings generated by the project Project Costs ATHENTO iDM Package FUJISTU fi6130 Scanner Support Total costs generated by the project Progression of cost savings per year Server equipped with necessary requirements 7,785.68 € 4,177.25 € €12,243.81 €13,992.92 68,215.49 € 4,774.00 € 8,897.92 € 8,897.92 € 43,834.59 € -15,954.09 € -5,761.17 € 4,431.75 € 14,624.67 € 24,817.59 € 23,000.00 € 3,197.90 € 2,000.00 € 0.00 € 28,197.90 € 3,800.00 € 3,800.00 € 3,800.00 € 3,800.00 € 3,800.00 € 15,200.00 € 2,000.00 € 3,197.90 € 23,000.00 € 3,800.00 € 3,800.00 € 3,800.00 € 43,397.90 € ROI 19,942.19 € 8,897.92 €8,897.92 € 280.88 € 321.0 € 321.0 € 321.0 € 321.0 € 1,564.88 € 4,774.00 € 4,774.00 € 4,774.00 € €13,992.92 €13,992.92 €13,992.92 24,817.59 €
- 14. understanding documents Total savings generated by the project Total costs generated by the project Return on Investment (over five years) Year ROI payback takes effect 68,215.49 € -43,397.90 € 57.2% RESULTS Year 3 As you can see, choosing Athento would mean that ROI would start a earlier than it would with the competi- tion’s product. We hope that we’ve been of help to you, but don’t forget that we’re always here to answer any questions that you might have. askourteam@athento.com Twitter: @yerbabuenasoft www.athento.com