project database

For most of us, the decision to buy software comes down to saving time and saving money. If we don’t save one or the other, then what is the point? We know in the business of IT that time is money. But how do you show that to your CFO, or to the business unit who is holding the purse strings for your purchase?

Usually, IT has to show that actual people with paychecks are going to be spending less time on a task that they are currently doing, and that those people are going to be able to be deployed against other tasks, increasing overall productivity. This is very simple return on investment (ROI).

Too often, people calculate the cost of an employee resource as just their total cash compensation. For example, an employee earning $60,000 per year is valued at $29 per hour. ($60,000 divided by 2080 hours in a year = $29 per hour) But, this calculation misses a very important cost. The actual cost of an average employee is 29.2% higher than their cash compensation when you factor in the cost of benefits. (Thank you Bureau of Labor Statistics!) So, an employee making $60,000 annually is actually costing the company $77,520 per year or $37.27 per hour.

That’s a big difference! Your HR department will likely have the actual numbers for your company. It is often referred to as the burdened salary cost. Using the actual cost of $37.27 per hour, you are going to show a much faster return on your investment, but you are also going to be representing the cost of your team far more accurately.

If the tasks that you are eliminating or streamlining also are freeing up the time of employees in the line of business, make sure that you are calculating those savings as well. And good luck with your next software purchase!