What are the four major tools used to develop CRM economic justifications? According to Beth Eisenfeld, analyst for the Gartner Group, the major tools clients use to support their CRM economics are TCO, benefit calculations, the project work plan and ROI (including break-even analyses).
The TCO Model: The Total Cost of Ownership (TCO) model views costs over time for a CRM project holistically across the enterprise. It includes people, process and technology costs and is a fundamental decision support-system tool.
[Additional information about TCO models and approaches, provided by Compaq, can be found at http://www5.compaq.com/tco/models.html.]
Benefit Calculations: According to Eisenfeld, many project managers are unclear about calculating benefits. She recommends beginning with pertinent data (i.e., turnover rates, head count, training costs, operating revenue and contribution) from sales, operations, human resources, training, public relations, finance, marketing and customer service, and support (CSS). Some enterprises have used Activity-Based Management (ABM) frameworks to assign fully loaded costs to activities performed within sales, marketing and CSS. When determining the costs and benefits for each of these items, get a consensus from each functional and departmental champion, as well as from the CFO.
Project Work Plan: Eisenfeld explains that the application domains of CRM (including technology-enabled selling, technology-enabled market, and customer service and support) require unique individual work plans with specific phases, activities and tasks. Break down work plans into manageable components (e.g., project management, business process design, application design, information management, infrastructure and change management). Align each domain plan with the overall CRM vision, business process and infrastructure plan, which details execution of the strategies, tactics, process, skills and technology. Tie each project work plan to the costs and benefits.
ROI: Return on Investment (including break-even analyses) is a financial analysis of how a project affects an enterprise’s financial statement. To fully appreciate the ROI expected as a result of CRM, Eisenfeld recommends completing a full business-case analysis prior to undertaking any initiative. Focus on understanding the total costs, as well as benefits, of undertaking a CRM initiative and the factors that may affect the achievement of the expected return.
[An example and additional details about calculating CRM ROI, based on Lucent Technologies’ CRM Central 2000 platform, can be found in the CRM ROI Calculator User’s Guide at http://www.brsilver.com.]
The bottom line, according to Eisenfeld: prior to making CRM investments, successful enterprises need to develop a measurement system that captures the information necessary for calculating costs and benefits. Use these measurement systems to recalculate costs and benefits during pilots, rollouts and throughout ongoing life-cycle support for CRM implementation.