Justifying the Cost of the New System

The final step in the software acquisition process is to perform a cost justification in order to determine whether the new automated recordkeeping system will yield sufficient benefits as compared to the existing manual system so as to justify the organization's investment in it. Financial executives and other managers frequently want to know whether their investment can be expected to generate a return on investment and if so, how soon investment will yield a payback.

CALCULATING THE JUSTIFICATION

In order to answer these questions, it is necessary to calculate the actual cost of the existing system during the current year and for several ensuing years, based on reasonable growth projections. These costs must then be compared to the projected cost of the new system. The one-time costs of the hardware and the software and of converting from the existing to the new system must be differentiated from the recurring costs of operating the system on an ongoing basis.

The benefits of the new system must then be calculated. These fall into two main categories: quantifiable hard-dollar saving in personnel or other resources (including productivity benefits resulting from more efficient work flow and enhanced access to information) and nonquantifiable, or intangible, benefits such as improved staff morale. As noted earlier, some hard-to-quantify benefits such as providing better service to customers and staying ahead of competition can provide the most compelling reasons to invest in automated records management systems. Such benefits nearly always justify investments in a new automated system.

The cost-justification analysis is completed by comparing costs and benefits. As a generalization, good automated records management applications should be able to generate a return-on-investment within two years.