ROI from risk reduction provided by Workforce Management Software

Feb 6, 2023

When you are writing a business case to justify implementing a workforce management system, there is a lot you need to consider. We have written an article on how to calculate the ROI, which involves comparing the costs and benefits. We have also written an article (including a template) on how to write a business case which includes broader considerations than just the ROI.

However, one area often overlooked when writing a business case is the valuation of the risk reduction provided by Workforce Management software to an organisation.

For example, a workforce management system will reduce the risk of being fined for a working time directive breach and conversely, not installing a system increases the risk to the organisation. There is a value to the business of that risk reduction, and in this article, we help you calculate that risk.

So, if you are writing a business case to justify the implementation of workforce management solutions, we recommend that you include a calculation of the Risk Reduction ROI.

How do I calculate the ROI from risk reduction provided by Workforce Management software?

Implementing new solutions and controls can be expensive. However, determining the cost of a potential risk versus the cost of the control can help you make the most cost-effective decision when choosing a system. Here’s one way to calculate the Return on Investment (ROI) to account for the cost of risk versus the cost of control:

  • Start by weighing the value of the risk reduction.
  • Then, consider the cost of reducing that risk.
  • Finally, calculate the ROI by subtracting the total cost of the control from the risk reduction value and dividing that number by the total cost of the control. 

By understanding the cost of potential risk versus the cost of the control, you can make informed decisions that will protect your business and save you money.

risk reduction provided by Workforce Management software

How do I calculate the risk reduction provided by Workforce Management software?

The calculation is simple; however, estimating the values for each element of the calculation can be difficult, and we discuss a worked example below.

Reduction in Risk = annualised rate of occurrence x expected monetary loss for a single event x reduction in the probability of risk occurrence with the control implemented 

Let’s look at working time directive fines. Let us suppose a local retailer had one fine in the last three years of £400,000 for a Working Time Directive breach. Implementing a workforce management system can reduce the probability of a future fine by 90%. So, the reduction in risk calculation is 0.333 x £400,000 x 90% = £120,000.

What is the calculation for ROI from Risk Reduction?

Again an easy calculation once we have calculated the risk reduction provided by workforce management software and the cost of implementing the control.

Risk reduction ROI = The reduction in risk minus the cost of control divided by the cost of control.

If we assume that the cost of implementing a workforce management system to reduce the risk for our local retailer is £60,000 then the calculation is £120,000 minus £60,000, divided by £60,000 = 1.0 or 100%.

How do I interpret Risk Reduction 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.

ROI from risk reduction

How do I calculate expected savings per year?

Again a simple calculation:

The annualised rate of occurrence is multiplied by the reduction in risk minus the cost of control.

So in our example it is 0.333 x ( £400,000 – £60,000) = £60,000

How do I calculate the ROI if the implementation is reducing multiple risks?

If by spending £60,000 per annum, you are reducing several risks, the Risk Reduction ROI calculation changes to 

Risk reduction ROI = Total reduction in risk minus the cost of control divided by the cost of control. 

You simply need to calculate the risk reduction provided by workforce management software for each risk being reduced by the investment and then add them together. Then deduct the cost of controlling the risk (the software investment) and divide the figure by that same cost number.

Can I combine traditional ROI and Risk Reduction ROI?

If the total cost of the workforce management system has been used to calculate the two ROI’s, then you are getting two sets of benefits from that investment. Thus, the two benefits can be added together when calculating the ROI. In our ROI calculator, we use this calculation to create a “Total ROI (Benefits plus risk reduction)” it has been calculated in the following way;

((value of benefits plus value of risk reduction) minus total costs) divided by total costs.

We believe this is a fair ROI for the whole project, although you may want to run that past your finance director or auditor.

What risk reductions can I expect by installing Workforce Management software?

When calculating the risk reduction provided by Workforce Management software, you will need to list the risks that you are reducing and estimate 

  • The number of occurrences per year
  • The cost per occurrence
  • The risk reduction that your workforce management system will deliver.

The following are some of the typical risks that a WFM platform can help you reduce.

Working Time Directive fines: A WFM system should highlight potential breaches

National minimum wage fines: A WFM system with time and attendance will track hours worked and can alert to any risks of minimum wage breaches

Holiday and time off breaches: The entitlement and break modules of a WFM will reduce the risk of non-compliance relating to time off.

Retention: Tools like auto-scheduling and the ability to set preferences will improve staff retention. 

Over budget spending: A budget module with a pre-approval process for spend will reduce overspend. Be careful not to double-count by putting cost savings on the benefit side of the ROI equation.

Time fraud: Good time and attendance management will ensure staff work the hours they are paid for. Be as above, be careful not to double count this one if savings are listed as a benefit.

Loss of sales (Lost opportunities): By implementing demand forecasting, you can ensure you have enough staff and reduce the risk of lost sales due to long customer queues.

GDPR breaches: Keeping your data in a cloud-based system and getting rid of spreadsheets will reduce the risk of a GDPR breach.

Data security breaches: If you choose the right WFM provider, you should be able to reduce the risk of a data breach which is high on the list of risks for many organisations.

Note: if you are also calculating the return on investment from the benefits that you expect from a workforce management platform, be careful not to calculate a risk reduction as a benefit. I.e. value of increased sales as a benefit and loss of sales as a risk. This is called double counting and will give you a distorted ROI.

If you use our ROI Calculator spreadsheet, you can enter the benefits either in the benefits or the risk reduction section, which will do all of the math for you. Just don’t enter a value in both sections.

We hope this article has been useful to help you calculate the ROI from the risk reduction provided by Workforce Management software and below we have listed more articles related to that category:

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