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How to Conduct a Return on Investment (ROI) Calculation for Acquisition Management Systems

How to Conduct a Return on Investment (ROI) Calculation for Acquisition Management Systems

A question I am asked a lot, especially in times of extremely tight agency budgets, is, what is the cost-benefit proposition for acquisition management systems?

A good acquisition management system should more than pay for itself in direct cost savings and add icing on the cake through additional benefits such as oversight capabilities and dashboards. If not, it isn’t worth the price, no matter how ‘affordable’ it may be.

We encourage our clients to look at acquisition ROI in terms of concrete cost savings. Primarily, the system should save real staff hours. Staff hours saved will translate directly into lower labor costs, or on the flip side, increased capacity (which means you have to hire fewer people to perform the same amount of work). These savings are critical to agency cost management, especially in these austere times.

When assessing the ROI of any acquisition management system, I recommend evaluating whether and how much it reduces time spent in:

• Tracking down contract files and forms
• Connecting and collaborating with other members of the contract team (CORs, COs, Evaluators, Managers, etc.)
• Trying to identify/understand problems with contract status, deliverables, invoices, and FAR compliance
• On-the-job training of new staff
• Transferring contracts between staff
• Conducting FAR-mandated activities through the acquisition lifecycle (presolicitation, solicitation, selection and award, performance, closeout)
• Responding to protests
• Responding to auditors
• Conducting market research
• Conducting evaluations and managing the evaluation team
• Management oversight activities
• Responding to upper-level management requests for information
• Tracking contract expenditures

If a system can save time in these ways, the next step in the ROI calculation is to estimate the approximate time savings in each area on a monthly or annual basis. Once you have the time saved estimate, multiply this by the average labor rate and you have an estimate of the ROI in each area. For example, if your staff typically spends 2 hours per month tracking down files, and the average labor rate for your organization is $75/hr, then your cost savings would be $150 for that area ($150 = 2 hours/month X $75 per hour).

Sum this up for the year and you will have a fairly good estimate of annual ROI. With this estimate in hand, you can compare the total annual cost of an acquisition management system and determine whether it justifies the cost to your organization.

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