This article was written as an expansion of our white paper “Choosing Sustainability Management Software for your Business” published in July 2011. Enjoy:
As part of your decision making process, you need to make a business case – in financial terms (and maybe some softer measures) – in order to make sure you that you are on the right track. The outline below should help guide your thought process in fleshing out what the benefits might be for your firm.
1. What’s your overall strategy?
Is it a cost savings approach? Do you want to just provide better reporting to stakeholders? Or are you generating revenue from a green product line and therefore need to track how green it is?
2. What can you actually measure?
Are you saving labor/time? Do you have fewer errors and better data quality? Is it a reduction in risk of losses due to litigation? Or are you able to increase sales revenue by having better data on your environmental impact?
3. What are the baseline values for those metrics?
It might take a 100 hours per month of staff time to produce your current report. Maybe you average $50K in legal fees yearly. Or you are currently selling $100K per month in your new product line.
4. What supporting research do you have?
This could be clear internal documentation of your baseline metrics as well as competitive research on your competitors, your region, your industry, etc. This research will tell you how your data in number 2 and 3 above stacks up against a larger pool of data.
5. What incremental percentage change do you expect to drive in your metrics?
You should be able to estimate this based on your answer to number 4. Are you going to be 5% better yearly? 10% lower yearly? 50% higher monthly? Just make sure you document your assumptions on how big a percentage change you are going to drive, which direction that change is in and what time period that change will cover – i.e. monthly metric, yearly metric etc. Does the change all happen in the first year or does it happen steadily for the entire period of your business case?
6. What volume change in your metrics results from the incremental percentage change?
Does a 5% decrease in labor hours equate to 5 hours a month or 500 hours a month? You need to be able to convert from percentage to number.
7. Translate your percentage/number value into a monetary amount.
Now you have to put on your quantitative hat as you churn through the numbers. This is where you weed out the quantitative benefits from the qualitative benefits. Both are desirable, but you want to be able to show the monetary value that you are going to save or earn as a result of your purchase.
8. Decide how you are going to measure it.
You know what you are measuring, how much it is going to change and what your end result is expected to be. Now you need to determine how you are actually going to measure your progress from start to finish. If you can’t put a firm description around how you are going to specifically measure the change – i.e. maybe your product revenue will increase for reasons besides its greenness – then you’ve found a soft benefit. It’s still worth tracking, but you may need to share some of your business case benefit with another department or project. If you’ve got a very specific way to track your benefit realization, then you’ve found a hard benefit. The hard benefits, are the kinds that your accountants will like – try to get as many of these on your list as you can.
9. Write it up.
You’ll need to present your business case benefits to somebody – whether it is your bank when asking for a loan to purchase the software, or to your executives to convince them to support your purchase decision. Tell them why your purchase is going to be a big success for the company, how much it will contribute to their triple bottom line, and how you are going to come back in a year or three and show them how well things went.
10. Measure it.
After you implement the software, you have to go back and do the things you said you were going to do in number 9. Many companies don’t actually close the loop today with projects – they just move on to the next thing and go on their way. If you want successful business results, it all comes down to measuring it, if you want to manage it.
Now that you’ve read this article, tell us what you think! And be sure to check out the full white paper.