A Formula for Calculating the ROI of BPM

Automation and standardization has benefit, but vague references to the possible value of Business Process Management (BPM), isnt enough for your management team. You need hard figures. So how do you get them? Consider some of these facts:

There is no clear formula or mathematical model available for exact mapping of cost associated with BPM/Dependent projects and ROI. Benefits are multi dimensional compare to single direction. ROI is a critical factor for any larger corporation/ senior management to know before approving any BPM related investment as it is not in the critical path of company success. Major corporations/companies understand the needs/benefits of optimal strategies for operating models to save cost. But dont want to invest on BPM due to unknown ROI. There are initial up-front costs associated with BPM installation and adopting this model.

To determine the Return on Investment & Net Present Value for BPM you need to track both the direct benefits - in terms of cost saving for short term (1 year) and long term (5 years) period and the In-direct Benefits in terms of cost saving. Examples of Direct Benefits:
Improvement to operating structure/efficiency due to BPM Reduction in day to day breaks, failures, rework compared to previous year Optimized staffing model consist of reallocation of roles and responsibilities (globally or low cost area) as Business Process Modeling exercise Reduction in risk exposure with more control points determined with help of BPM Standard and enhanced End 2 End detailed process maps to reflect companies policies and procedural (Direct saving on External/internal audits & Time spend on audits with reduced exceptions)

Examples of In-direct Benefits

Ease of change management of future enhancements due to more standardized documentation and process mapping Centralized location of Policies & Procedures with details end-to-end mapping for cross reference Direct contact and interaction with IT and business staff due to seamless integration. Ease of onboarding news clients and developing new strategies to accommodate need of clients. Centralized Business analysis & Project Management efforts with more control. Expansion of BPM model to other department with minimal efforts and reduced external expertise. Regulatory and compliance benefits and support to compliance certifications.

The ROI example presents a comprehensive view of rate of return on investment by incorporating BPM with business and operation. Here it clearly shows that Direct Impact" or savings are greater in both time and strategy when you incorporate BPM in addition to in direct benefits. The overall approval for any company/ department can be quantified / justified based on above calculation by plugging in their numbers. Adoption and Best Practices Once youve calculated the ROI of BPM, whats the best way of adopting it? Incrementally, is the answer! The biggest obstacles to BPM adoption are culture, resources and funding because in large organizations, multiple divisions need to coordinate on the initial roll-out. So, its always advisable to incorporate BPM technology by taking an incremental approach at enterprise level. This has been the approach taken by many financial organizations, for instance, when adopting BPM strategies. Financial businesses are complex and distributed, and if you start small it is much easier to see and measure the impact. Additionally, BPM modeling can provides a very quick and direct visual perspective of any gaps and issues that may be a reflecting of problems within larger financial processes. This helps managing business planning, reporting, integration and activities associated through closed loop. Sample Model Business Architecture

Once youve calculated the ROI of BPM, and identified the areas where you will adopt it, heres an example of what a business architecture model could look like:

References & Assumptions * ROE: Rate of Error * 1 % saving in terms of HRS converted to approximate per month distribution. * 2 Saved Time per Year approximate resource saving (Considering standard 40 -50 Hrs/week) * 3 1 FTE Approx salary nearly 80K /Year * 4 - BPM Licenses( Multiple) approx 4 K (Enterprise level could be cheaper) * 5 BPM FTE Cost from vendor for installation and training (Approx 30 -40 Hrs/Week) * IRR - Normally its 6 % - 8 % * Used google.com Web Search for secondary information * Article reference http://www.bpminstitute.org/articles/article/article/future-with-bpm-costvs-benefits-strategies.html

About Vinod Jain

Vinod Jain, Transformation strategist (VP) for Financial Market Treasury services and responsible for handling business and operational strategies, optimization and transformation projects. His expertise includes security servicing like Tri Party Repo, OTC Derivatives, Trade settlement and custody business. Vinod holds M.B.A in Finance and Marketing from Fordham University, NY, M.S in Computer Sc. From FDU. NJ, PMP and other awards. He recognized by "Omicron Delta Epsilon" (American & International Honor society in economics) and Who's Who among American Universities. Please note my writing expresses my personal opinions and does reflect the views of my employer. Vjain_99(@yahoo.com I invite you to join as a member of the PEX Network Group http://tinyurl.com/3hwakem, you will have access to Key Leaders Globally, Events, Webinars, Presentations, Articles, Case Studies, Blog Discussions, White Papers, and Tools and Templates. To access this free content please take 2 minutes for a 1 time FREE registration at http://tiny.cc/tpkd0 PEX Network, a division of IQPC, facilitates access to a wealth of relevant content for Process Excellence, Lean, and Six Sigma practitioners. Further enhanced with an online community of your peers, we will provide you with the tools and resources to help you perform more effective and efficiently, while enhancing the quality operations within your organization. As our industry becomes more and more dependent on the Web for information, PEXNetwork.com has been developed to provide Six Sigma professionals with instant access to information. Leveraging our strength and foundation in education, IQPC and the Process Excellence Network are uniquely positioned to provide a comprehensive library of webcasts gathered from our events, as well as exclusive content from leaders in the industry.