How to Calculate the ROI of EHS Software
Introduction
If you aim to persuade management to invest in EHS software, it is crucial to showcase its potential Return on Investment (ROI) for the company. This blog article provides step-by-step guidance on calculating the ROI of EHS software and offers effective strategies for communicating these findings to management.
A Return on Investment is the amount of an investment's return relative to its cost. ROI is a measure of the investment's efficiency. The ROI of an investment (e.g. such as purchasing a license for EHS Software) may be calculated by using the following equation:
(Benefits of Investment) / (Cost of Investment) = Return On Investment (ROI)
In the example below, we guide you through the process for determining the ROI of implementing a software solution for the completion of monthly area safety audits.
Step #1 - Calculate Direct Savings From Investment
To calculate direct savings, develop a list of items with a definable cost that the investment will impact. These "items" may commonly be divided into two categories:
- Materials/Goods
- People's time
Savings Associated With Materials/Goods - To determine the savings associated with materials/goods:
- Make a list of the materials/goods that will be impacted
- Assign current and future costs for each material/good
- Subtract the future cost from the current cost to determine the savings for each material/good
- Add up the savings
Below is an example of a table that can used to perform this calculation.
| Task | Current Annual Cost | Future Annual Cost | Annual Cost Savings |
| Paper | $10 | $0 | $10 |
| Cost of Materials/Goods --> | $10 | ||
Savings Associated With People's Time - To determine the cost savings associated with people's time:
- Make a list of tasks that would be impacted by the investment (e.g. in this case, replacement of a paper area auditing system with a software solution).
- Estimate the time taken to complete each task using both the current and proposed system.
- Multiply the difference in hours by the average hourly rate of the person who completes the task to determine the task-specific savings.
- Add up the cost savings for each task to determine the direct savings.
Below is a table summarizing one approach for completing this analysis.
| Task | Time Consumed with Current Process | Projected Time with Software Solution | Hours Saved Per Person Per Year | Average Hourly Rate | Total Cost Savings | Completing Paper Inspection Forms for 10 areas/month | 60 hours | 30 hours | 30 hours | $30/hour | $900 |
| Tracking Inspection Completion | 12 hours | 0 hours | 12 hours | $30/hour | $360 |
| Filing paper inspection forms | 6 hours | 0 hours | 6 hours | $20/hour | $120 |
| Assigning and tracking action items to completion | 36 hours | 12 hours | 24 hours | $30/hour | $720 |
| Maintaining inspection related performance metrics | 36 hours | 18 hours | 18 hours | $30/hour | $560 |
| Direct Cost Savings --> | $2,640 | ||||
Step #2 - Calculate Indirect Savings From Investment
To calculate indirect savings:
- Brainstorm a list of benefits that will result from implementation of the investment
- Estimate a cost savings associated with each benefit
- Add up the cost savings to determine the indirect savings
Below is a table summarizing one approach for completing this analysis.
| Indirect Benefit | Cost Savings |
| Being able to dedicate 90 hours per year of company-related expertise to other activities (instead of high paid consultants). | $10,800 |
Lower worker compensation costs resulting from:
|
$5,000 |
| Downtime reductions resulting from fewer injuries and quicker and more-effective closure of non-conformances found during inspections. | $10,000 |
| Potential Indirect Savings --> | $25,800 |
Step #3 - Determine Investment Cost (e.g. Inspection Software Cost)
Solicit proposals from software companies that provide the solutions you are interested in. Be sure to understand all costs of the software solution, not just the licensing costs. Examples of non-licensing costs can include:
- Implementation costs (e.g. importing users, setting up instances, etc.)
- Customization costs (e.g. replicating your specific forms)
- Training costs
- Equipment purchases (e.g. tablets or servers)
As an example, for a small business, the cost of the Ecesis Inspection Software Solution is:
$320/month + $10/user
Or, for a company that will have 10 users, the cost would be:
$420/month or $5,040 per year.
Generally, a separate tablet is not required since Ecesis will run on employees' phones. However, if a tablet will need to be purchased, you may need to add a one-time cost of $200 to $400 dollars.
Step #4 - Calculate the Cost Savings
Plug the savings and costs determined in steps 1-3 above, into the following equation to determine the return on investment of the software:
(Direct Savings) + (Indirect Savings) - (Investment Cost) = Cost Savings
Or, for a small business to implement the Ecesis Inspection Software Solution, the cost savings could be:
$2,640 + $25,800 - $5,040 = $23,440 per year of cost savings!
Step #5 - Calculate the ROI
Plug the savings from Step #4 and Costs from Step #3 into the following equation to determine the ROI of the software:
ROI = (Cost Savings of Investment) / (Cost of Investment) = $24,440 / $5,040 = 4.84 (or 484%)
Step #6 - Make a Presentation to Management
Summarize your research, the cost savings, and ROI in a presentation to your company's management and sell them on how software can improve their bottom line while at the same time improve workplace safety and make your job simpler (so you can focus on the bonusable objectives they assigned to you).
Conclusion
The journey to secure management buy-in for EHS software finds its lodestar in the ROI framework. Through diligent calculation, strategic communication, and a visionary approach, EHS professionals can not only articulate the financial gains but also position EHS software as a catalyst for cultural and operational transformation. As advocates of safety and progress, this endeavor cements the role of EHS practitioners as architects of enduring value, safeguarding both the well-being of the workforce and the prosperity of the organization.
