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# How to calculate the ROI from a Workforce Management system?

Feb 6, 2023

Workforce management software is essential for any business looking to maximise efficiency and productivity. It can help you manage your employees, track their performance, and optimise their schedules. But how do you justify the ROI from a workforce management system?

At ShopWorks, we understand the importance of ensuring your business gets the most out of its investments. That’s why we’ve put together this guide to help you understand the return on investment for workforce management software. We’ll explain what it can do for your business, how to calculate the return on investment, and how to present a case to the board.

## What is the ROI from a Workforce Management system?

The ROI from a workforce management system is a measure of the difference between the cost of the software and the benefits it provides. It’s important to understand the goals you want to achieve with the software and the metrics and data you should track to assess the success of the investment.

For example, you can track the number of hours saved by automating specific tasks, the number of errors reduced by using the software, or the amount of money saved by streamlining processes. All of these have a monetary value which can be used to calculate the return on your investment.

## What is the calculation for Return on Investment?

The basic formula for calculating any ROI is to take your benefits, deduct your investments, and then divide that number by the investment cost again.

Let’s look at a calculation example of the ROI from a workforce management system below.
Let’s assume that a medium-sized leisure business agrees to a 3-month paid pilot in 5% of its venues. The expected total cost of the pilot, including the software vendor and the leisure business, is estimated at £20,000. The total cost of a 3-year contract should the pilot be successful is £200,000. Now, let’s suppose the whole project is expected to bring £1m of benefits.

Our ROI calculation would be £1,000,000 minus £220,000, divided by £220,000 or 3.54 (354%). You can see that we have included the cost of the pilot in the calculation for costs.

## How do I interpret ROI?

ROI is usually expressed as a ratio or percentage. A higher ROI is better; it means you have had a better return for the same cost.

In the example above, 354% means the return is over 3 and a half times greater than the investment.

## How do I take into consideration existing costs when calculating ROI?

Your decision to implement a new system should consider the existing costs because the difference between existing costs and proposed costs is either a benefit or a cost. Let’s suppose you employ a full-time employee on £25,000 to enter data from a spreadsheet into your payroll. If the WFM system automates this, you will obtain £25,000 per annum in benefits.

If your current system costs £100k per annum and your new system costs £250k you should consider using £150,000 in your cost calculation. Why? Because the benefits are going to be derived from an additional expenditure of £150,000.

## What costs will I need to take into account for a WFM implementation?

Once you’ve calculated the cost of your existing system, you can then calculate the cost of the proposed WFM software. This includes:

• The cost of the software over the life of the contract
• The cost of implementation
• Hardware costs such as biometric readers
• The cost of your team on the project
• The cost of any integrations with other systems, including the cost of ongoing support
• Ongoing staffing costs to administer the system
• Any other associated costs

## How do I calculate the financial benefits of a WFM implementation?

When calculating the ROI from a workforce management system, you might need to make assumptions about the benefits. It is often easier to obtain accurate values for the costs because most of them will be covered in the contract between your organisation and the WFM software provider. Benefits require some assumptions to be made. Your WFM vendor can often help, and as we have mentioned elsewhere a pilot can help you measure the benefits in your venues. We have also included some base assumptions in our free ROI calculator excel spreadsheet.

Here are some of the benefits you will need to estimate before you can calculate your ROI.

• Increased sales due to better forecasting
• Reduced staffing costs in your venues
• Reduced time fraud
• Improved staff retention
• Reduced compliance risk

## How do I assess the reduced risk benefits when calculating ROI for my WFM project?

Some benefits, such as cost savings or revenue growth, are easy to see and measure. You can compare the values before and after implementing WFM software. However, a WFM tool also helps you reduce risk to your organisation, such as the reduced risk of fines for noncompliance with labour laws. The risk reduction has a value that can be calculated and should form part of your ROI calculations and your business case for implementing a WFM system.

We have written a separate article discussing how you calculate an ROI from risk reduction, such as compliance breaches, which is an additional benefit to implementing a WFM system.

## How do I take into account SAAS costs when calculating the ROI?

The ROI from a workforce management system should take into account SAAS software costs that are often charged on a monthly or annual rental basis, and it can make the calculation a little more complicated depending on the length of the contract with the SAAS provider. If the SAAS rental is a rolling contract that can be terminated at short notice, we recommend that you make a realistic choice of how long you will likely keep the software in place before you look to change. The effort involved in changing a WFM software makes 3 years a good minimum contract length.

If the SAAS contract is longer than a 90-day rolling contract, then you should take the actual contract length.

In both cases, you should multiply the monthly SAAS costs by the number of months you expect to be using the software to calculate the total SAAS costs. One of the benefits of SAAS pricing when doing this calculation is that it often includes hosting, support, upgrades and so on, making the calculations easier. Remember to take into account any automatic annual increases.

## How should I deal with inflation when calculating ROI for my WFM project?

Your software contract might have an automatic price increase each year which is linked to inflation. This is easy to calculate when working out the ROI from a workforce management system. However, benefits are likely to improve in line with inflation. If salary or sale prices go up, the benefits in terms of additional sales or cost savings can increase as well.

Some people will ignore inflation when calculating ROI as it affects both sides of the equation, while others will do a detailed analysis by benefit.

Our free ROI Calculator template allows you to include estimates for wage inflation, sales growth and software price increases and will use these to calculate the ROI.

## How do I consider the costs of a paid trial when calculating ROI for my WFM project?

A paid trial/pilot is a way of implementing a workforce management system and then measuring the benefits before committing to a long-term contract. If your provider offers a trial, the cost should be taken into account when calculating your ROI from a workforce management system.

A trial should allow you to recalculate your ROI based on measurable benefits before committing to a project. In your business case, you will essentially be asking for a sign-off for the cost of the pilot, which could be lost. However, if you cancel the project after the trial, you will have avoided much higher risk, and you can calculate the Risk Reduction ROI for avoiding that risk.

Let’s look again at that medium-sized leisure business whose ROI we calculated earlier.

Our ROI calculation was £1,000,000 minus £220,000, divided by £220,000 or 3.54 (354%). We have included the cost of the pilot in the calculation for costs.

If the pilot is a success and the benefits are proven, you will get a healthy 354% ROI, and you can commit to a further £200,000 in costs. If the pilot fails, you will have to write off your £20,000, but you will save a £200,000 expenditure.

So you can calculate the ROI of the pilot in one of two ways. The benefit of a successful project is £780,000, and the cost of finding out if that benefit is real is £20,000 giving an ROI of 38.0 or 3,800%.

If the pilot fails, you should use the Risk Reduction ROI. The risk is a failed £200,000 project, and the cost of reducing that risk by 90% is £20,000.

Therefore, the Risk Reduction ROI is (£200k x 90%) – £20,000, divided by £20,000, giving a Risk Reduction ROI of 8.0 or 800%.

Either way, the ROI from a paid pilot is considerable, and we recommend you discuss which approach to take when calculating the ROI of a paid pilot with your finance team or auditors.

We have done a separate article on Risk Reduction ROI, and our free ROI calculator will do these calculations for you.

## How does the length of the contract impact my ROI?

When you are calculating the ROI from a workforce management system the expected length of the contract is important to take into consideration.

If you have high implementation costs, these are effectively spread over the length of your contract when calculating the ROI. By extending the contract, you can improve your ROI.

However, your total cost of ownership will have gone up and the total risk to the organisation will have increased. This is why a pilot and break clause will often help reduce the risk.

## What are the risks to delivering my projected ROI, and how do I mitigate them?

Looking at the calculation of ROI, you will get a lower ROI if you have underestimated your costs or overestimated the benefits. Let’s look at an example.

We had a total project cost of £220,000 and benefits of £1m over the project’s life, giving an ROI of 354%.

Now let’s suppose that the software didn’t deliver the cost savings anticipated and only generated a benefit of £850,000. In addition, let’s suppose that the implementation costs were not capped, and you spent an additional £20,000. This would give you a total project cost of £240,000

You can now calculate the revised ROI as £850,000 minus £240,000, divided by £240,000 or 2.54 (254%). That has reduced the ROI by 100%. This example illustrates why risks need to be mitigated and the value of testing all the benefit assumptions in a paid pilot.

It also is why you should generate ROIs based on different sensitivities to see if the project still makes sense if you undershoot your expected benefits by 25%.

Here are some examples of risks that will impact the ROI from a workforce management system:

• Delay in delivery: if you have signed a 3-year contract and the implementation takes 12 months and not a planned 6 months, then there are only 24 months to generate a return, impacting the ROI calculations you have presented to the board. A delay in delivery will also impact your Time to Value for WFM software. We have written an article on how to avoid this, which you can find here.
• Higher implementation costs: As shown above, any cost increase reduces the ROI. Getting a fixed price for implementation reduced this risk
• Lower savings: When doing an initial business justification, you will often take the assumptions of cost saving provided by the software vendor, a pilot or trial will allow you to test these assumptions and recalculate before committing to a full rollout.
• Lower additional revenue: WFM systems can increase revenue by matching staffing levels to customer demand. Again testing the assumptions in a pilot of some sort can mitigate the risk of miscalculating the ROI.
• Higher internal costs: remember internal costs when calculating your ROI.

As mentioned above, a paid pilot can help reduce the risk, as can a fixed-price implementation. In your business case document, it is helpful to document these risks and how you will overcome them.

If you want some help calculating the ROI from a workforce management system you are proposing for your business, we have an ROI calculator as a free excel spreadsheet which you can access here

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