ROI = Greater Value for the User
Sep 1, 2005 12:00 PM, by James Gompers
RETURN ON INVESTMENT (ROI) is a prevalent concept in the information technology (IT) industry, and most IT customers demand it. So why does the security industry overlook, even avoid, calculating and using ROI?
Mostly, the avoidance stems from sheer lack of knowledge of what ROI is and how it can be leveraged to increase sales and add more value for the end-user. The security industry's history of standalone silo systems does not lend itself to selling systems that provide ROI. Instead, dealers and integrators are often looking to avoid “sticker shock” to make the sale. Getting out of the price game and bringing higher levels of security and value to the end-user are what cost justification and ROI are all about.
Witness this recent exchange between an end-user and a prospective integrator: The integrator team boasted several times that the system they proposed would save the customer money over a more traditional approach by using the existing IT network. The CIO (chief information officer) asked how much would it save and what network resources would they need. The integrator said he did not know exactly and admitted he was not sure how to calculate the savings accurately — but the savings did exist! The lesson: Security vendors need to develop tools to enable the integrator to determine accurately the type and level of cost savings and the ROI when using their solutions. Such tools would avoid embarrassment for dealers and integrators and enhance value to the end-user.
The science of ROI
Calculating ROI encompasses many areas of cost savings. Factors used to calculate ROI include reduced initial cost of ownership, reduced long-term cost of ownership, lower operating costs, reduced labor or personnel needs, time savings or improved efficiencies, higher levels of customer service and lower insurance costs or less exposure to loss or liability. The point is that ROI can in fact be measured. Sometimes it is straightforward and sometimes it can be complex. Put simply, ROI is any positive impact on the end-user's bottom line from either increased revenues or decreased costs.
ROI in action
With continuing convergence of security into the IT network, users now have access to solutions not only for traditional security applications, but also for the sharing of information, control, features and functionalities among multiple and unlike systems. New advances can automate, speed up information processing — and eliminate the need for some human interaction. Following are some of the technologies that would benefit greatly from use of ROI analysis to effectively demonstrate their level of value to customers.
RFID and tagging systems
Let's start with a solution known for creating ROI — RFID (radio frequency identification). RFID tagging systems are used to stop shrinkage and loss of product inventory and assets in industries ranging from retail to distribution and from libraries to healthcare. The systems enable simple ROI calculations by comparing changes in losses based on inventory audits. Many security dealers have sold and implemented these systems on the basis of ROI. RFID provides a prime example of vendors providing security dealers with the tools and resources to effectively calculate and demonstrate ROI in the sales process.
CCTV, or IPTV (Internet protocol TV), is a sector in the security industry that is changing at breakneck speed. Following are some of the innovative solutions in this market and how they bring value to the end-user.
The DVR is rapidly being replaced by more software-centric NVR platforms offering more features, functionality and storage. NVR solutions can easily be cost-justified compared to standard DVR system because:
NVR platforms can process up to 64 cameras per server, thus making them more scalable and cost-effective.
NVRs can reduce installation cost by using existing TCP/IP infrastructure — thus reducing cabling and labor costs for camera installation.
An NVR can use various storage solutions, making it cost-effective to retain captured information for longer periods of time.
NVRs can be configured with an advanced virtual matrix switcher, thus eliminating the expense and footprint of hard-wired matrix switchers.
Those are some of the initial cost savings for an NVR solution. Over time, NVR solutions also would benefit the bottom line by reducing the amount of equipment. Maintenance, support and operational cost on less equipment would also be lower. The following technologies can add even more value to NVR solutions with respect to ROI.
IP cameras can enhance the cost effectiveness of the NVR solution by eliminating the need for encoders or video IP servers used to interface with analog cameras. Many of these IP cameras can use power-over-ethernet directly or by the use of power injectors, thus reducing cabling costs and allowing installation by use of one standard CAT 5e cable. Also, IP cameras are offered in NTSC resolutions all the way up to 5-plus mega-pixels, which enables the client greater flexibility in the amount of data collected by the IP cameras. Such flexibility slows the obsolescence of the camera and allows the investment to pay off longer. Many of these cameras can be adjusted through client software to reduce the need to physically adjust and troubleshoot camera problems — further reducing long-term cost of ownership and improving ROI.
Advanced-imaging IP cameras enable a single mega-pixel camera to produce multiple views from what was previously a single or limited field of view, thus eliminating the need for two or more cameras. Immersive view imaging can replace four to six cameras in many applications. It is even possible to reduce the number of cameras, the power requirements, network ports and installation costs, while achieving greater levels of coverage and security.
Optical turnstiles can not only bring cost savings and improved ROI to a building, they can also increase security and allow the end-user to analyze usage of a facility. By implementing turnstiles integrated with access control and visitor management software, the end-user can control who has access to a facility while reducing the number of “gatekeepers” and security personal that would otherwise be needed. This approach creates savings from reduced personnel and a decreased exposure to potential loss or liability.
Smart cards have key benefits related to ROI, including:
Higher levels of security between the card and reader and the reader and system, thus reducing the risk and exposure to the information stored on the card.
Multiple application capabilities related to unlike systems and solutions such as: access control, point-of-sale, logical access, parking, transportation and loyalty programs and biometrics.
How does a smart card reduce cost and create ROI? Consider help desk calls: About 80 percent or more of such calls are about lost or forgotten PINs and passwords. A simple smart card application can eliminate the need for multiple PINs and bring higher levels of security to both network and application access, thus reducing the number of help desk calls dramatically. What about using the card for multiple applications such as access control, point-of-sale, logical access, parking and transportation? Smart cards bring value by reducing total administration costs and reducing the number of cards issued while bringing more convenience to the user.
ROI for security: Following the IT experience
With almost any of today's advanced security applications, there is an impact on the end-user's budget. This creates the necessary conditions for measuring ROI. Why is the security industry not tracking and measuring these advantages and cost-justifying its systems into the mission-critical part of clients' businesses? Whose responsibility is it to calculate these cost savings and the value added to a security solution — the vendors or security dealers?
In the IT/IS space it is the VARs (value-added resellers — equivalent to the security integrators), but with support from the vendors and distributors. Similarly, security vendors and distributors should support dealers and integrators by providing the tools, resources and information needed to calculate ROI effectively and thereby demonstrate greater value to the end-users.
With new players entering the security market from the IT arena, ROI calculation and use will become more widespread. Soon end-users will not just ask questions about ROI or cost justification, they will demand it. It is critical that vendors and distributors work with dealers and integrators to provide the resources and tools to allow them to “do the math.” Doing a better job of determining exactly how a proposed system or solution impacts the client's bottom line is the path to demonstrating real value.
About the Author
James Gompers is founder of Gompers Technologies Design Group Inc. (GTD Group), Gompers Technologies Testing and Research Group Inc. (GTTR Group) and the Gompers Alliance. He has more than 20 years of expertise in the security industry as a consultant from the end-user perspective. E-mail him at firstname.lastname@example.org.
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