ROI
Finding the ROI in Content Management
by Jim Howard
19-Apr-2002
It's clear that content management has finally come into its own as a distinct, enterprise-level discipline. Whether delivered as a specialized, packaged software application, a custom developed solution or as a service, content management systems seek to provide both efficiency and predictability to Web publishing, while putting powerful tools in the hands of largely non-technical users.
But in a down market, can content management continue to be justified as an ongoing expenditure? And, more to the point, how can organizations know with certainty that content management is delivering a real return on investment?
Let's begin with the understanding that content management systems (CMS) can be cost-justified on the basis of various intangibles or "softer" benefits -- rationales that may simply be part of the cost of doing business. For example, if your online presence poorly represents your organization, how much does that harm the company? How do you quantify a qualitative metric?
While it's challenging to put a price tag on having a standard look-and-feel and information architecture, being able to publish multilingual content, or being able rapidly and accurately keep your web properties up-to-date, all of these intangibles do contribute to return on investment (ROI). Establishing and maintaining your online brand is no longer an option. The cost of one lost customer or the delay of a major order could easily cover the cost of a content management system
CFOs, of course, typically aren't sympathetic to ROI arguments involving intangibles. Of course, the argument that shareholder value can be increased due to efficiency gains from the use of a CMS may have greater effect. The good news, however, is that hard dollar cost savings accruing from the use of a CMS are possible (and can even be relatively easy) to calculate. Depending on the type of organization and the size and type of the asset management and web publishing requirements, measurable ROI can be predicted and proven.
Today, costs for managing web properties and digital assets lay all over the map. In some cases, companies spend major sums of money with an outsourced agency to design and build Web pages. In others, a large internal team hacks out HTML -- a team that could and should be moved to more productive tasks. In still others, a CMS exists -- albeit an inefficient one -- that costs the organization far more than it saves.
Righting the Balance
For too many companies, budget priorities are badly out of whack. Organizations should be spending 75 percent of their content-related budgets on content creation and 25 percent on content management -- instead of the reverse, which is often the case today. Time-drains for content contributors can include: writing HTML, converting to ASP or XML, making sure everything works, changing out images, talking to the Web shop, and so forth. It would be vastly better if talented staff could spend their time working on developing content and marketing to their audience.
According to research conducted by the UK firm Dynamic Markets, 40 percent of companies would require one person for up to three months full-time to structurally alter a single site. Another 40 percent were unsure about the scale of the task required to develop site content and keep it consistent. At least 20 percent suggested the assignment would be anything between four months' work and a full-time job.
Dynamic Markets' research indicated that 84 percent of companies with more than 20 sites handled the localization of their site components (layout, design, etc.) manually. Only 21 percent of companies surveyed automated their Web site changes or implemented technologies to replicate corporate changes at a local level.
Clearly, automating tasks and separating data from display (to enable flexible development) will provide efficiencies. Enabling speedy approvals, eliminating technologists or IT staff from the site update process, creating once and publishing many times, are all measurable cost-savers.
In the realm of customer service, having comprehensive, reliable product support data available via the web can result in rapid and tangible savings. With many companies paying in excess of $8/call and $6/e-mail, serving even 10 customers a day via the web site -- rather than engaging a support person, live -- can cover much of the cost of implementing a system. One can multiply these savings for multi-lingual call centers.
There are also those situations in which a CMS may provide huge savings. Like actually collecting on an insurance policy, such an event could occur only once during the lifetime of the system, but once is enough. Suppose, for example, that your organization confronts a lawsuit and needs to be able to re-construct what your websites said on a given day? The stronger CMS tools will cover your liability.
The same applies to disaster recovery, obviously a top-of-mind concern post 9/11. The $64,000 (or perhaps $6.4 million) question becomes, can you re-publish your website(s) to another server in a matter of moments, in the event of a major data center outage or hardware failure?
Finally, there is the issue of forward compatibility. A well-designed content management system will enable you to manage links and navigation as well as the content itself. Site expansion (or contraction), addition of new site sections and site redesigns, should be cheaper and faster. Addition and management of calendar functions, polling and surveys, lead forms, etc. should also be automated -- or at least be quick to implement.
Finding the Price Tag
In understanding the potential savings a CMS can bring, what about the costs of installing and owning a system?
In the past, enterprise-class packaged products dominated the market, with their million-dollar (software + implementation) fees -- though major vendors have been cutting costs into the six-figure range of late. Now, a number of mid-range packages are available, priced in the $40,000-$100,000 range for a license. Typically, the cost to install, integrate and customize these departmental or small-enterprise packages is two to three times the price of the software. When the costs of hardware and network components are factored in, a fully operational CMS normally runs anywhere from $200,000 to $400,000. Tack on an additional 10 percent to 30 percent annually to support the application, or between $2,000 and $8,000 a month. Support costs include software maintenance contracts, modifications to existing implementations (adding new templates, etc.), and managing the software, database, hardware and network (often hidden internal IT costs).
Open Source systems can be a great alternative. Take the above costs and remove the license fee. The main rap against Open Source tools is that the architectures can be esoteric and relatively few developers are conversant in some of the Open Source tools. In some cases, the cost to implement and manage and Open Source system is about the same as a mid-range package. The companies that provide support for the Open Source code also typically carry a professional services group, with a dedicated sales force charged with bringing in revenue.
Homegrown, "custom-coded" systems are still fairly popular and ostensibly offer a lower initial price tag than packaged software. However, any custom-coded system -- or a system that is built on a framework, but is not a "true" documented and supported product -- is very costly to modify. Changing the workflow on a custom system, for example could require a full rewrite. Building in multi-lingual support or just adding a simple feature often requires re-engaging with the group that originally wrote the software, at costs that could exceed those of the initial project. Custom-coded systems also tend to have a shorter lifespan -- unlike packaged systems, which are continually being upgraded to work with new databases and operating systems. A custom system works in the environment it was created for, and likely in no other. All in all, with CMS packages available at every price point, building a custom system rarely makes sense.
Another alternative is software rental. Depending on your needs, rental may be a viable, and less expensive, option. Software rental is normally a "pay-as-you-go" service, and often includes active support. Rental is also fully inclusive; that is, one price covers all of the software, hardware, bandwidth, maintenance, and security management. A subset of this category could be called "Web-native" software. The theory is that these firms will be able to offer a solution more efficiently (and inexpensively) because they created the software from the ground-up with an eye toward rapid deployment and easy administration as a hosted service.
For content management systems, software rental is just coming into its own. The major downside of an outsourced option is that it isn't appropriate for higher-security intranets, or "transaction oriented" web sites. For traditional web publishing and asset management, however, it can be a good way to go. Pricing for software rental can vary widely, but most organizations should be able to find a suitable system in the $2,000 to $8,000/month range.
Some firms offer "managed outsourcing" of applications, meaning that they install, customize, and manage the application -- all on a rental basis. EDS and Accenture, the giant integrators, provide this service for different enterprise-level packages. In my experience, is hard for these companies to offer these solutions any more cost effectively than an internally installed and managed solution, and, depending on the platform, these systems can tend to be inflexible for web sites that are constantly changing. Your results may vary.
Doing the Math
Now that both the savings and the projected costs have been quantified, it's time to do the math to calculate the return.
Return on Investment (ROI) = (costs saved from system use) - (cost of installing a system + cost of maintaining a system). Divide by time, to get the time to ROI.
For example, if an organization can save $10,000/month from using a system, and the system costs $40,000 to install and train staff, and $4,000 a month to manage and support, a one-year calculation looks like this:
($10,000 x 12) - ($40,000 + ($4,000 x 12)) = $32,000 returned from investment in one year
To calculate speed of return (in other words, "how long does it take this system to pay for itself?"), calculate the percentage of the year required to "pay off the system" and multiply it by 12 months. In this case:
($88,000/$120,000) x 12 months = 8.8 months, until the system paid for itself
What if this company selected a mid-range solution with higher implementation costs (say, $180,000 for software and licensing)? The system will still pay for itself financially in about two years.
To simplify and automate this process, many software vendors have built ROI calculators. These ROI calculation tools should, however, be used with a grain of salt. There's a major difference between moving a human resource from one task to another (albeit more value-added task), and actually reducing the cash flowing out of the company. It is prudent to differentiate between these two types of "cost savings" when presenting the results of an ROI analysis. It's also prudent to look at the total cost of ownership of a system -- not just the software and implementation costs -- when calculating ROI.
The not-so-surprising truth is that ROI often easily justifies the implementation of a CMS -- that's ROI measured in actual, hard dollar, tangible, calculable cost and time savings for an organization. Based on this type of an analysis, reprioritizing desired features and project elements based on return is also not only feasible but advisable. Remember that the cost of the solution has as much to do with the return as the cost savings.