nucleus research, inc. assessing and maximizing the real value of email june 2, 2004 ian campbell...
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![Page 1: Nucleus Research, Inc. Assessing and Maximizing the Real Value of Email June 2, 2004 Ian Campbell Chief Executive Officer icampbell@NucleusResearch.com](https://reader037.vdocument.in/reader037/viewer/2022102907/56649d2a5503460f949fea02/html5/thumbnails/1.jpg)
Nucleus Research, Inc. www.NucleusResearch.com
Assessing and Maximizing the Real Value of Email
June 2, 2004
Ian CampbellChief Executive Officer
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
An ROI-focused technology research and advisory firm.
We deliver ongoing advice, analysis, and modeling tools to help senior management quantify and prove the financial and business benefit their technology decisions bring to the corporation.
Research centers in Boston, Paris, and London
National Association of State Boards of Accountancy Registration #108024.
About Nucleus Research
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Agenda
Identifying ROI potential Scoring the potential Why measure The benefits and costs of Email Calculations Examples Assessing all benefits and costs
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Let’s look at ROI…Let’s look at ROI…
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
The hard fact of technology
If an application doesn’t generate a positive return, you shouldn’t have deployed it.
Deploying too many applicationswith a negative ROI (that can’t be blamed on others) can get you fired.
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Key factors to a high ROI
Breadth“How many people will the application affect?”
Repeatability“How many times a day will they use it?”
Cost“Is this a costly task?”
Collaboration“Will employees need to collaborate?”
Knowledge“Can I reuse the information I create?”
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Measuring Technology
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Why use financial measurements?
Old Days
Choice was limited and the value was obvious.
Siebel Oracle
Interoffice mail email
Today
You have many choices, often replacing current strategies.
Decision must be based on sound business criteria.
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Where to focus efforts?
Can you identify the areas that deliver maximum benefit?
Content management:
Benefit
0
10
20
30
40
50
60
70
80
90
Paper Searching
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Cost vs. benefit
Can you justify the upgrade or purchase decision?
Will the company get back more than it spends? Did I get a fair price based on the benefits? Can I prove this to management? Can I prove this to the shareholders?
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Prioritize projects
ROI PaybackProject A 345% 18 monthsProject D 128% 8 monthsProject C 54% 1 monthProject B 120% 38 monthsProject E 205% 19 months
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Standard ROI process for technology investments
FinancialResults
Category Assessment- Marketing materials- Trade pubs- Competition
Identify- Top areas of real benefit- Impact to company/group- Stakeholders
Quantify- Measure benefit areas- Confirm values - Survey - Direct observation - Estimate- Get benefit buy-in
Assess- Calculate Metrics- Reconfirm values- Perform sensitivity analysis- Assess expected case/worst case
Phase 1
Phase 3
Phase 2
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Benefits of Email
Increased productivity! Rapid communication Broad reach
Internal External
Group unity Knowledge transfer and
storage Communication history
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Costs of Email
Direct costs Personnel Training Storage Technology
Decreased productivity! Mass mailing Personal communication Vanity mailing
One company: 70 messages per employee per day informing others of new postings to the corporate Intranet.
Virus Lost corporate information Spam
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
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Spam Volume
Average number of Spam messages per employee per day grew from 13 to 29.
0
5
10
15
20
25
30
J uly '03 May '04
Source: Nucleus Research Note E27: Spam: The Serial ROI KillerSource: Nucleus Research Note E27: Spam: The Serial ROI Killer
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
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Lost Productivity
Average number of minutes per employee per day spend reading and deleting Spam grew from 6.5 to 14.5.
0
2
4
6
8
10
12
14
16
J uly '03 May '04
Source: Nucleus Research Note E27: Spam: The Serial ROI KillerSource: Nucleus Research Note E27: Spam: The Serial ROI Killer
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
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Cost of Lost Productivity
Time lost grew from 1.4% to 3.1%.
At $30 per hour, this represents a cost per employee of $1934 per year.
When asked to guess the cost, the average was $220. $0
$200
$400$600$800
$1,000$1,200
$1,400$1,600$1,800
$2,000
J uly '03 May '04
Source: Nucleus Research Note E27: Spam: The Serial ROI KillerSource: Nucleus Research Note E27: Spam: The Serial ROI Killer
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Spam Filters
The effectiveness of Spam filters fell from 26% to 20%.
Why? Increased sophistication of
Spammers. Less aggressive filter
settings.0%
5%
10%
15%
20%
25%
30%
J uly '03 May '04
Source: Nucleus Research Note E27: Spam: The Serial ROI KillerSource: Nucleus Research Note E27: Spam: The Serial ROI Killer
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
The Calculations
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Compare financial measurements to other internal decisions and success factors - NOT to the results of other companies!
Using financial measurements
Positive
ROI!
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
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Short finance class…
Toolbox used to measure the value of technology:
Net Present Value Payback Period Return on Investment IRR TCO
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
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Net Present Value
NPVThe value today of cash received at a future date given an interest rate.
Use a spreadsheet or a financial calculator
$100Year 3
$152.09
@ 15% Interest Rate
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
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Payback Period
PaybackThe time period needed before net savings equal initial cost.
Excellent measure of riskShould be the key measurement!
Savings
Costs
Payback Period
Time
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
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Payback and Risk
Payback indicates when ROI = 0
Short payback periods drive an aggressive deployment strategy:
Deploy today and – if necessary – discard tomorrow.
Value
Time
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
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Return On Investment
ROIThe average total savings over 3 years divided by the cost.
Nucleus recommends a three year horizon but use a time period consistent with your organization’s standards.
(Year 1, Year 2, Year 3) / 3
Initial Cost
ROI =
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ROI Analysis You Can TrustTM
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ROI Analysis You Can TrustTM
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Internal Rate of Return
IRRThe interest rate that equates to the cash flows.
Never use IRR! If you have to, use MIRR instead
$100
$199 $9
IRR = 100%
Year 1 Year 10
$100
$0 $102K
IRR = 100%
Year 1 Year 10
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ROI Analysis You Can TrustTM
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What about TCO?
Total Cost of Ownership looks at costs and ignores benefits.
Good for comparing two similar applications Good for budgeting
Bad for choosing applications Bad for prioritizing projects
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ROI Analysis You Can TrustTM
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What about the others?
EVA - Economic Value Add(ed) is really ROI less the cost of capital. It’s simple but eliminates an important ratio: Is an EVA=3% good or bad?
TEI - Total Economic Impact is really just ROI but explicitly includes direct and indirect benefits.
ROO - Return on Opportunity is TEI made fluffier.
ROA - Return on Assets is only interesting if there are sunk intangible costs.
cROI – False ROI inflated by vendor marketing folks.
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ROI Analysis You Can TrustTM
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Assessing costs and benefits
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Recurring vs. One Time
Costs and savings can be either one-time or recurring:
maintenance purchase hardware hire employees sell old hardware contract with consultants
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ROI Analysis You Can TrustTM
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Measuring costs
Basic Rules
Count everything that is directly associated with the project. (I purchased a web server for this project)
Don’t count infrastructure items not associated with the project. (I used the existing web server)
Do count infrastructure items that were driven by the project. (The company purchased a web server because of this project and two others like it - include 1/3 of the cost)
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Six categories of cost
1. Software2. Hardware3. Personnel4. Consulting5. Training6. Other
one timeand
recurring
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Cost examples (one time)
Purchased 1 Server @ 50K
5 developers spent 3 weeks creating the application
5*3*5*Fully Loaded Cost = ?
Created a 10 page training guide for 50 people50*10*.07 = 35
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Cost examples (recurring)
Maintenance on the server is 5K per year.
The IS department has dedicated one-fifth of a person to maintaining the system.
I plan to hire consultants in years 2 and 3.
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ROI Analysis You Can TrustTM
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Measuring Benefit
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Direct vs. indirect benefits
Direct50%
Indirect50%
n=100
Source: Nucleus Research published ROI case studies
Average ROI 345%Average ROI 345%
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Reduced the number of personnel
Reduced costs to print and distribute the maintenance manual.
Avoided regulatory fines.
Reduced accounts receivable.
Reduced the cost to publish to the web.
Reduced travel costs
Benefit examples - directly quantifiable
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Benefit examples - productivity based
Reduced the time needed to develop new software by 25%.
The financial audit takes 1 week rather than 3 weeks.
Maintenance on an aircraft takes 10% less time.
Increased software quality
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ROI Analysis You Can TrustTM
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Types of benefits
Believability
1st Order 2nd Order 3rd Order 4th Order
Direct savings- Reduction in cost
Indirect savings- Increase in worker productivity
Semi-direct savings- Expected reduction in cost
Very indirect savings- Increase in manager productivity
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ROI Analysis You Can TrustTM
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Techniques for measuring benefits
Direct observation – pilot site Corporate history Surveys Case studies Benchmark data Educated guess Uneducated guess Psychic Vendor supplied estimates Vendor ROI sales quick calculator
GoodGood
BadBad
Always do a worst-case assessmentAlways do a worst-case assessment
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Benefit achievability
Type of benefit
1st Order
2nd Order
3rd Order
4th Order
Measurement strategy
ObservationObservation
Case studiesCase studies
Vendor calculatorVendor calculator
Educated guessEducated guess
Good
Caution Unlikely
Caution
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Inefficient transfer of time
The fact of life: time saved does not equal time worked.
Use correction factors to adjust the estimate of time saved to a reasonable estimate of the value to the company.
Range from 0.1 to 1 to adjust time saved to time worked.
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Benefit assessment worksheet
Estimate of productivity increase: 5%(based on: direct survey and estimate)
Value of increase for 10 people @ $100K ea: $50,000(use fully loaded cost)
Correction factor: 0.50(Correct for inefficient transfer of time)
Expected benefit to company: $25,000How will the benefit be achieved?
__ Reduction in staff or staff hours__ Increase in productivity, limiting the need for more staff__ Increase in profit to company__ Gradual attrition over next 3 years (10%, 50%, 100%)
Worst-case benefit: $12,500(In this case, assume 50% of initial estimate)
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Benefit milestone
Commit to achievable milestones:
Target: $25,000 annual savings
Year 1: Reduce hourly cost by $2,500Year 2: Reduce hourly cost by $12,500Year 3: Reduce hourly cost by $25,000 or staff by 1 person
Assumption: No change in workload
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Potential benefit problems
Is the savings on the critical path?
Left front tire saves 10%
Double counting10% increase in productivity and 10% more sales
Real value to the companyIncreased profits, not revenue
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Fixing a negative ROI
Change the price! Ramp costs with users Reduce pre-start costs
Moving cost out of the pre-start column increases ROI.
Evaluate productivityIs the correction factor aggressive?Is the productivity benefit estimate too low?
Expand the opportunityCan you deploy to more people?
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Email challenge: Company A
European banking firm with offices in UK, France, Belgium.
Problem: 4 corporate intranets with company information in each.
Bad habit: Use email to notify employees of new information on corporate intranet
Cost: 70 messages per day (30 minutes per employee)
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Email challenge: Company B
US Manufacturing company with multiple locations.
Problem: Company messages distributed by both email and paper.
Bad habit: Email only provided to white collar workers.
Cost: Paper, distribution, time
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Exchange vs. Notes
Nucleus Research interviewed 41 Notes and Exchange administrators in March 2004:
None of the companies plan to change their existing messaging solution in the next 24 months.
25% use both Lotus Notes and Microsoft Exchange in different areas of the organization.
33% of companies using Lotus Notes use it for just for e-mail.
100% of Microsoft Exchange customers use it for more than just email (calendaring, collaboration).
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Companies that achieve high email ROI
Implement a corporate intranet
Deploy sophisticated searching
Use collaborative technology
Install spam filtering
Create an email usage policy
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
The right corporate ROI strategy includes:
Common metric for all projects. ROI and Payback
Standard correction factors for benefits.
Standard ROI tool and business case presentation.
Key personnel managing assessments armed with information, case studies, benchmark data.
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Human issues
Individual Will people share? Encourage, Measure, Compensate.
Hierarchical Will management feel threatened?
Structural Will accounting and marketing collaborate?
Cultural Americans, French, Germans, …
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
SummaryAchieving email ROI
Achieving high ROI with email means focusing on: Direct costs Threats to productivity
Deploy to all employees Implement and acceptable use policy Install spam filtering
Gauge the breadth and repeatability of any project before you start.
Measuring ROI should be consistent and structured across your entire company.
Examine both expected and worst-case ROI. The shorter the payback, the lower the risk.
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Resources
Nucleus Research Web site:
www.NucleusResearch.com
Nucleus Research knowledge center Tutorial B20 – ROI Quick Reference Guide A11 – Managing Payback and Risk A10 – Maximizing ROI A21 – The Strengths and Weaknesses of TCO A4 – Human Factors Impact Application Value
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
Overall Strategy
Reduce volume Make messages more important Use as communication medium – not
knowledge store
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ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
ROI Analysis You Can TrustTM
Copyright Nucleus Research, Inc.
Nucleus Researchwww.NucleusResearch.com
SummaryAchieving Email ROI
Measure and manage costs Deploy to all employees Implement and acceptable use policy Install spam filtering Monitor use