Knowing whether a technological investment is worth it can be a difficult task. Programs and models have been made to measure financial impact of tech investments, so that it is easier for companies to understand, especially with the variety of external factors impacting the outcome.
What is financial impact?
Financial impact can be a result of changes within a company, this may be new tech or a new way of doing things, revenue can be lost or gained.
Revenue is lost through market changes or when the product does not perform the duties as advertised, this could lead to negative cash flows or profits.
The correct tech investment can lead to a positive financial impact, for example using cloud-based software technology. Technology like this can firstly, increase data security as it will constantly be recoverable. Secondly, it is more accessible, which means team members can access the cloud anywhere and at any time. Lastly, you and your team will have access to the information in the correct format and all of it can be found in one place.
How to measure financial impact of tech investments?
When it comes to investing in technology for your business, it can be a difficult task to make the right decision that will benefit your company financially. You can view the technology investment subjectively, but this could lead to an unfavourable result.
A more objective decision is advisable when taking into consideration profitability, productivity, and consumer value of the investment. Profitability is important to consider because it helps determine whether any revenue will be received from the tech investment. This affords the company to upgrade other software as well as, keeping employees happy with their salaries.
Productivity relates to the amount of service provided every hour. Ideal technology implementation will boost productivity. Meanwhile, incorrect implementation may result in delays that cost both time and money.
In terms of consumer value, this is when the consumers’ reviews on the technology invested is considered, making sure they are satisfied with the product. Decide what value this has for you as a consumer. How will this benefit you and your business. Benefits may not be monetary, it may make certain tasks easier, you may expect work moral to increase with it’s implementation, these are important factors to keep in mind.
We often turn to calculators and models to help us measure financial impact of technology; one way is through return on investment (ROI). In this type of measurement, the calculation is as follows: ROI = Earnings / by cost. In order to calculate this, the net return of an investment is divided by the cost of the investment to obtain a percentage as a result. If this result is more than zero, the returns are greater than the costs.
In terms of using this method, there are three factors to consider, namely;
- Time frame: In terms of large investments it will take longer to pay off which means more capital is required.
- Consistency: When this calculation is performed, it needs to be applied persistently with the same rates when the technology was bought, in case of inflation.
- Precision: Rounding off the end amounts would need to be applied throughout the calculations and it would need to be realistic.
Why should we invest in technology?
Investing in tech is important for numerous reasons such as;
Firstly, it can assist the company in growing which in turn can improve business.
Secondly, may result in better interactions with customers through faster responses, when it comes to queries and instant messaging apps, which can also be used to improve communication.
Lastly, a boost in speed and productivity. Speed can be improved by ine automation of menial tasks and simplify tasks. On the other hand, when processes are sped up, employees are more productive and take less time to complete assignments, this makes the company more efficient.
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To conclude, measuring the financial impact on tech investments can become quite burdensome, but by having the correct models can make it less demanding. The financial impact on tech investments can be negative or positive, that is why looking at it from all angles is of great significance, to gather the correct facts from research and valuable calculations.