Calculating the Return On Investment (ROI) of EHS Software
If you want to convince management to fund your idea, you need to be able to demonstrate that your idea will provide them a return on their investment. This article walks you through how to determine your idea's return on investment and how to effectively communicate it to management.
Introduction
Return on Investment (ROI) is the amount of an investment's return relative to its cost and is a measure of the investment's efficiency. The ROI of an investment (such as purchasing a license for EHS Software) may be determined using the following equation:
(Benefits of Investment) / (Cost of Investment) = Return On Investment (ROI)
In the example below, we walk 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 "things" with a definable cost that the investment will impact. These "things" 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 (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 complete the task to determine the taskspecific savings.
 Add up the cost savings for each task to determine the direct savings.
Below is a table summarizing one approach for completed 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 completed this analysis.
Indirect Benefit  Cost Savings 
Being able to dedicate 90 hours per year of companyrelated 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 moreeffective closure of nonconformances 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 solution(s) you are interested in. Be sure to understand all costs of the software solution, not just the licensing costs. Examples of nonlicensing costs can include:
 Implementation costs (such as importing users, setting up instance)
 Customization costs (such as replicating your specific forms)
 Training costs
 Equipment purchases (such as 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 employee's phones; however, if a table will need to be purchased you may need to add a onetime cost of $200 to $400 dollars.
Step #4  Calculate the Cost Savings
Plug the savings and costs determined in steps 13 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).