When considering a technology investment for your business, it’s important to analyze the potential benefits of the project. Two types of benefits should be considered in the decision-making process: tangible and intangible benefits. In this article, we provide some information to help you make the right technology decision.
Tangible and Intangible Benefits: Definitions
Tangible benefits are usually measurable in dollars, and are typically associated with a direct increase in revenues or decrease in costs. These benefits can be easily measured by comparing revenues and costs before and after the investment.
Examples of Tangible Benefits:
- Increased sales
- Increase in market share
- Reduced transaction costs
- Reduced labor costs
Intangible benefits are more difficult to measure, as they can’t be directly translated into dollars.
Examples of Intangible Benefits:
- Increased compliance
- Increased customer satisfaction
- Improvement in employee morale
- Improvement in workplace safety
Although intangible benefits can be more difficult to measure, they still influence the business decision and are important to consider.
The same can be said about fleet telematics in that both types of benefits need to be considered. Tangible benefits, for example, could include saving on fuel costs, and parts and maintenance. While intangible benefits derived from telematics could include fewer customer complaints about a late service or delivery, or less time spent on fuel tax or compliance reporting.
When both types of benefits can be just as important to any type of operations, that means it’s also critical to know how to measure them.
Three Steps for Making a Strategic Technology Investment
The following three steps can be used to help quantify intangible benefits, which are broken down below. These same steps can be used to help decide on whether or not telematics is right for your fleet, or if you’re comparing the various levels of features offered by telematics suppliers.
1. Identify the Benefit
The first step in quantifying an intangible benefit is to identify what the benefit is.
Example 1: IT Software
If a business makes an investment in a new software that manages IT trouble tickets, then they might expect to improve compliance and increase employee productivity and morale since tickets are tackled in an organized fashion. They expect the new software to help their IT department resolve issues more quickly and efficiently.
Given these results, they could also expect that IT compliance is improved because systems are less vulnerable for problems if they are working properly. They can also expect that employees can be more productive and happier if the IT department is able to fix any system or hardware issues quickly.
Example 2: Telematics
An example in fleet would be to help reduce overall risk by investing in a telematics solution. Telematics can help bring tangible benefits to safety, such as fewer accidents or speeding incidents by monitoring driver behavior and better training them. Telematics can also help keep vehicles well maintained and in safe operating condition. But if you combine and step back from these tangible benefits, over time these tangible benefits can lead to the intangible — lowering the overall risks associated with having a fleet.
2. Tie the Benefit to One or More Business Goals
The next step in quantifying an intangible benefit is to tie it to a business goal.
Example 1: IT Software
Continuing with the same example from the last section, a company can tie several business goals to the investment of a new IT management software. The company wants to increase customer satisfaction and improve employee turnover rates. The investment of this software can help them to achieve both goals.
If employees have their IT issues resolved quickly, they will be more productive and happy overall, which will make them less likely to leave the company. If IT systems and hardware are running smoothly and fixed in a timely manner, this will also allow the employees to better assist their customers. Customers will have a higher satisfaction rate if they do not experience IT-related delays or issues in the ordering or customer service process.
Example 2: Telematics
In the fleet example, the business goal could be to reduce fleet insurance costs. By taking an active approach to safety and safe driving practices, this can help grow and strengthen your company’s mindset toward safety (i.e. the safety culture). With safer drivers and fewer incidents — all bringing down that level of risk — it may also bring down insurance costs over time as well, whether through a carrier or if self-insured.
3. Use a Method to Quantify the Benefits
With the benefit and associated business goals identified, an organization can use either of the following methods to quantify and analyze the potential value of the benefits: scenario analysis and process of elimination. Scenario analysis is done before an investment, while process of elimination is done after.
Method A: Scenario Analysis
The scenario analysis considers the possible results (intangible benefits) of a specific action (investment). The organization must first determine the likelihood of an intangible benefit resulting from the investment in a new product. They can then assign a value to the benefit based on the odds of it occurring.
For example, an organization may need to decide whether to invest in new customer service software for their support department or new inventory management software for their fulfillment department.
They can determine that:
- Investing in the new customer service software has a 20% chance of improving customer satisfaction by 50%, and
- Investing in the new inventory management software has a 60% chance of improving customer satisfaction by the same amount.
Using this methodology, they can determine that the investment in the customer service software has a less valuable potential benefit for the organization than the inventory management software.
Method B: Process of Elimination
Process of elimination can be used to assign value to intangible benefits after they are achieved. This process is completed by analyzing the change in revenues and costs after an investment. The change in revenues or costs associated with expected tangible benefits can be subtracted, and the difference remaining will represent the value of the intangible benefits.
For example, a business invests in some new software which results in an increase of $200,000 in profits and only $150,000 in budget cost savings. The organization expected the $150,000 cost savings, but the remaining $50,000 can be assigned as value from the intangible benefits of the investment.
Both methods can also be used to quantify intangible benefits received from fleet telematics.
Conclusion: Don’t Forget the Intangible
It’s easy to focus on the neatly measured, quantifiable benefits — and these are often the benefits organizations are looking to immediately achieve. But those deeper, longer term benefits are often the gamechangers that can have a serious impact on how an organization operates. Though hard to measure, they can be easy to see if you go through these exercises on how to quantify the intangible.
Author: Ally Brekke, Financial Controller – Geotab Inc
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