Before you write that check: Financial justification for tech expenses

How much? How much do you write that next check for?

You have been presented a technology solution that will “fix all your business problems!”

How much should you invest? Will it address the business needs of your company?

These are questions I often ask when meeting with key decision makers. This comes as a surprise to many of them. I work for an IT services provider, so maybe they suppose I’ll want to talk about servers and switches and software patches. Maybe my business-oriented questions are a bit unexpected. But after pondering the questions, many business executives really don’t have a good answer. They don’t understand their technology environment well enough to determine if or how a proffered solution will help, or which one will help most, or how to determine financial justification for technology outlays.

Without understanding the environment, they can’t calculate a payback or a return on their investment.

Based on the reality of that last sentence, this next statement may dumbfound you: Many of these C-level leaders feel enough pain to change—to commit resources to “doing something”—despite not clearly understanding how it will truly help their business.

Will this investment be like others before? When I write a large check, will I just find after all is said and done that this did nothing to help serve my clients better? That it did nothing to increase revenue or add to the bottom line to support growth within our company?

When the pain level hits 10 out of 10

If it’s okay, I would like to share a real life story with you. It starts with a call I took in the fall of 2012. I knew the voice on the other end right off: the COO of a residential healthcare facility a few hours away. As the head of Operations, he oversees information systems and facilities. I had been talking with him for a few years and had set up several small technology projects for his company. After the usual goodwill greetings, he got right to the point. “Wayne, I’ve been telling you for years that we’re in pretty good shape. Now we’re ready to make some major changes. I want you to come meet with us. How soon are you available?” We compared calendars and set up a meeting for a few days later.

I had visited the company’s offices in the past and always met one-on-one with the CEO or COO. Upon my arrival I was surprised to find the entire Executive team waiting to talk with me. This was different than before so I assumed they were serious. I listened for some time as each member of the C-suite shared the current status of some IT issues and aired their frustration and their desire for change.

The symptoms of a problem were straightforward: The company was suffering from data flow problems. Staff members had to rekey the same data into multiple applications. The applications couldn’t communicate with each other. The process for submitting reimbursements was not efficient, so payments took longer. The company’s employees were demoralized; and its leaders recognized that the situation required outside help.

When the CEO spoke up, I expected to hear a few questions about options that I would recommend. Instead, he said, “I’m ready to write a check.”

He explained that the company’s pain level had reached a 10 out of 10. He desperately wanted a solution that would stop the pain. I knew what was going through his mind: How much? How much do I write that next check for?

Looking at the problems from a business perspective

I asked for permission to pose a few questions and they agreed. First I asked them to describe, in detail, how they were currently sharing data between departments. What were the dataflow bottlenecks costing the organization? Based on the lack of data sharing and data workflow interruptions, I was trying to figure what cost savings could be used toward a new solution. The best answer they provided indicated that they were aware of a workflow obstacle: “We know we are working in department silos and we need to change.”

financial justification for technology outlays in healthcareI asked them to do two things. First, put away the checkbook, at least for now. And second, get to fully understand their environment by conducting an internal gap analysis. A gap analysis would incorporate a workflow study and efficiency evaluation, and would identify bottlenecks and lost productivity due to a lack of data sharing. The CEO and his leadership team agreed to do both.

After my team completed the study, we identified some internal workflow issues that fall outside of our managed IT services expertise—but NetGain Technologies was able to help the healthcare company to identify providers that could be of service. We advised that using these unaffiliated service providers would help to create an IT environment that would allow all the company’s systems to work together efficiently.

NetGain Technologies’ business advisors identified specific breakdowns in communication (including an incompatibility between accounting and dietetics systems that resulted in mismatches in residents’ prescribed diets and the meal plans they were paying for). We identified a hidden financial impact on the healthcare company that helped to justify investment in new procedures and services. The gap analysis report also suggested solutions that considered both existing and future demands. We then helped to identify the proper equipment to allow their systems to work most efficiently.

The healthcare company’s leaders followed the recommendations we made. They selected an electronic medical records (EMR) solution that had data for all departments including accounting. Now, the company’s employees are able to serve their residents more efficiently with fewer people. The company realized an annual savings of $110K by eliminating a process that required double entering data and by minimizing lost time for staff to support their patients and residents. The cost savings provided a payback for the workflow study and the EMR solution in 12 months. The continued savings have allowed additional investments in new services and facilities for the company’s clients.

Next time you are considering writing any size check, make sure you understand your current environment. Some due diligence will lead to savings and ultimately a good understanding what the payback will be and your return on investment. Then you will know, How much do I write that check for?!

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