How to calculate the ROI of business process improvement analysis

How to calculate the ROI of business process improvement analysis

Business process improvement (BPI) is becoming a focal point for more organizations, regardless of size or industry. But overhauling complex business processes is a costly undertaking. How do you prove to management that BPI is a smart business move?

Executives want to see the financial benefits before they pull the trigger on a $150,000 project. Calculating the ROI of a business process improvement project will help your leadership team visualize how BPI achieves the company’s goals.

Here’s how to calculate the ROI of business process improvement.

Identify process waste through value stream mapping

The first step in business process improvement is determining the processes you want to improve. Value stream mapping is a flowchart method used to identify and root out waste in a process. By detailing a process from start to finish, you can evaluate how every step adds value to your business.

Value stream mapping uncovers problems like process delays, inventory issues and excessive downtime. It helps identify the source or cause of the waste so decision-makers can see where inefficiencies exist.

Value stream mapping allows you to assign value to each step and determine where cost savings are possible.

Define what the new process should look like

Once you have outlined the current process, use your value stream map to identify waste and determine what the process should look like.

Don’t focus only on fixing certain parts of the value stream. Focus on the process as a whole. With processes that involve multiple groups, it’s easy to lose sight of the ultimate goal when each team is only focused on improving their steps.

Here are some questions to help guide you:

  • What do I like about the current process?
  • What parts of the current process do I spend the most time on?
  • If I had to recreate the process from scratch, what would that look like?
  • Is the information this process is generating being used?
  • Do I still need this process?
  • What parts of the current process do we really need?
  • Are the time and effort being expended worth the gain?

Does this sound overwhelming? We can help! Schedule your BPI Assessment today.

Determine the cost of business process improvement

Once you have created your value stream map, look at the costs associated with implementing the process improvements. If you’re planning to fix a process that impacts multiple divisions, you can expect a hefty budget requirement. You’ll first need to calculate the external and internal costs associated with your process improvement project.

Tangible costs will include:

  • New hardware and software
  • Development costs
  • Subscription costs
  • External consulting

Internal costs include time spent by anyone connected with the project – including process improvement teams, subject matter experts and the leadership team.

Once you’ve outlined how much your BPI initiative will cost, you can determine the anticipated ROI.

Calculate the direct ROI of business process improvement

 Cost savings occur any time you cut out a wasteful step or remove duplication from a process. To calculate the cost of current processes, consider these questions:

  • What is the average hourly cost per employee?
  • How many hours do employees currently spend completing a specific task?
  • How much time will the improved process or technology save these team members?

For example, imagine you’re a healthcare company that processes medical claims and an employee’s salary amounts to $20 per hour. Before BPI, each employee has the capacity to process 2 medical claims per hour, costing the organization $10 per claim.

After implementing a $200,000 custom web application, your employees are able to process 5 medical claims per hour, with an average cost of $4.

The new technology solution saves your organization $6 per claim. If your organization processes 100,000 claims per year, that amounts to $600,000 in yearly savings. Using the standard ROI formula and factoring in your technology investment, you can calculate the immediate return on investment:

ROI = Net profit / net investment * 100 

ROI = 600,000 / 200,000 *100

ROI = 300%

By cutting process waste and identifying ways to be more productive, BPI offers many opportunities to save costs and increase profit. Common benefits include:

  • Faster employee and client onboarding
  • Less time spent searching for documents
  • Faster service delivery to end users
  • Higher volume of work output
  • Reduction in day-to-day system failures and risk exposure

Better processes make your employees’ time more valuable to your business. The higher volume of work output means you can take on additional clients and generate more revenue without having to hire new employees.

Determine the indirect ROI of business process improvement

Indirect ROI is harder to calculate, but the benefits are worth mentioning.

BPI reduces risk. Updated processes typically offer better security and risk mitigation. When your systems run smoothly with minimal downtime, end users can enjoy constant access to services they need – keeping employee and customer satisfaction high.

BPI improves regulatory compliance. Maintaining regulatory compliance protects your brand’s reputation in the eyes of stakeholders and customers. Compliance reduces the risk of costly penalties and disruptions in productivity.

BPI improves quality of services. Let’s say you implement a process that offers your customers faster and more reliable online account services. The improvement in service quality and convenience will make customers happier, attributing to higher customer retention.

Start with a BPI assessment  

By calculating the ROI of business process improvement, you can visualize how BPI drastically cuts process waste and increases opportunities for growth.

At MXOtech, we help companies execute BPI projects that extract greater ROI of time, money and resources. Through a low-cost BPI assessment, we audit your current processes and recommend technology solutions that will accomplish your business objectives.

Real-life results with business process improvement

After conducting a BPI assessment for painting company All-Tech Decorating, MXOtech uncovered serious process inefficiencies. MXOtech designed a custom solution to streamline communication and reduce manual labor needs. As a result of business process improvement, All-Tech Decorating saved more than $330,000 in staff time over a three-year period.

Ready to achieve greater ROI from your technology solutions through business process improvement? Contact us today to schedule a free review with a BPI specialist.

Other articles you might find helpful: