A document management system can generate a significant returnon investment for small- to medium-sized businesses. The changes intechnology pricing over the last 10 years has finally made itpossible for small- to mid-sized businesses to enjoy the sameefficiencies provided by information technology systems that largeenterprises have enjoyed for decades.

Think about where we would be today if banks did not havecomputer systems, or clinics could not provide access to patientfolders at remote locations. These advances in technology can nowbe applied with ease at the small- to medium-enterprise level.

Current Conditions

In today's business world the ROI of any project is important ascompetition increases, it is imperative that a company make sureinvestments generate a large enough return. Increasing businessefficiency is the most compelling reason for investing money in anyproject.

Obviously technology has helped many businesses over the last 10to15 years become more efficient. Just replacing typewriters withword processors and calculators with spreadsheets initiated a hugeincrease in productivity per employee.

Taking the next step is more challenging than simply replacingone tool for another as these programs were basically pointsolutions. It was predicted as early as 1975 that the "paperless office had arrived". Obviously progress hasbeen made toward this goal, but the amount of paperwork necessaryto run a business (particularly a regulated one such as financialservices) has increased a great deal since 1975. Just to maintainthe status quo requires businesses to move to the next level inoffice productivity and implement a complete document managementsolution.

Almost every business in today's workplace uses some type ofdocument management system (including paper-based systems) tomaintain the documents used on a daily basis. Accountingdepartments maintain A/P and A/R files for customers and vendors.The sales department maintains orders for each of the customers.Customer service representatives maintain records on service callsand the service needed.

A comprehensive electronic document management system (EDMS) canprovide a method for storing all relevant documents about aparticular customer or vendor allowing office staff to gain a totalview of the customer or vendor. If the EDMS can be integrated intothe point software solutions that each department uses, significantgains in productivity and efficiency can be gained.

For instance the accounting department could access documents(orders, invoices, contracts, etc.) online from their accountingapplication. Sales could access documents from their CRM software.The goal of an EDMS should be the software glue that ties thedifferent software packages together in such a manner that alldepartments in a business gain efficiencies.

What Is ROI?

ROI is simply Return on Investment. In layman's terms this isthe amount of time it takes to get the value of the dollars spenton a project or item back (returned to the business). For instanceif a large lathe is purchased for a machine shop and it cost$50,000 and each month a profit of $10,000 can be tied to thelathe, then your ROI (in simplistic terms) is five months($50,000/$10,000). This type of formula can be applied to virtuallyanything purchased although it can be harder to determine for somepurchases. Typically the effort to calculate an ROI is only done onmedium to large investments, as the time spent can be extensive andrequires gathering appropriate data.

What Is a Document ManagementSolution?

Simply put, a document management solution is a system that canreplace not only the paper files and documents in an office, butenable the user to send an electronic document through the samesteps a paper document or file would follow. For instance, if afinancial services firm has a new account form that is filled outfor each client account and it must proceed from the agent to thetrader and then to accounting, then a document management systemmust provide the same path.

So a true management system not only provides storage, but mustprovide the same workflow capabilities. Along the way it must alsoprotect documents so that only the necessary people can view them.An EDMS is a step up from the point solutions like spreadsheets andword processors as the entire office must be capable of using them.Therefore they must be easy and straightforward to use and ideallywould integrate with other applications the office is already usingwith a minimum of effort.

So to sum up the attributes of a document managementsolution:

• Maintain a repository of electronic documents.
• Provide a mechanism of securing the documents.
• Integrate with other software solutions being used.
• Provide a method for putting the documents into a definedworkflow.
• Supply audit data providing the four W's (Who, What, Where,When).
• Capture form data in a database for usage in monitoring andmanaging the business.
• Comply with any necessary regulatory requirements.

Benefits of a Document Management Solution

The list below is an outline of benefits of a documentmanagement system:

• Documents are stored in an electronic format which is easilybacked up and can be copied offsite relatively easily. Multiplecopies of the documents can be made easily and cheaply. Incontrast, a paper-based system would require copies of each pieceof paper as they are generated. At five cents per page this canbecome prohibitively expensive.
• Misfiled documents can be easily found using the searchcapabilities built into the document management system. Misfileddocuments in a paper-based system can be impossible to finddepending on how and when they were misfiled.
• Filing documents is relatively easy particularly if thedocument management system is integrated with other softwarepackages. Filing paper documents requires a trip to the filingcabinet.
• Moving documents from one point in the workflow to another issimple. Determining who has a document or folder in workflow isavailable at all times. Finding a paper folder somewhere in aworkflow can be difficult at best, particularly if it's buried onsomeone's desk.
• Move any paper forms to an electronic version. Data can becaptured and populate a database and the paper is no longernecessary. Filling out paper forms can be tedious and prone tohuman error. Using electronic forms allows data to be pre-filledeliminating these types of errors.

Generating an ROI

It is relatively easy to take the benefits listed above anddetermine if an office will get a significant return on investment.Here are some ways to calculate an ROI for a system.

Physical Costs

• How many filing cabinets do you have? A standard four-drawerfiling cabinet requires at least 12 sq. ft. of office space.
• Do you rent an offsite storage facility? What is the monthlycost?
• If an order comes in, how many copies of it are made and wheredo they go? More than likely all of these copies are placed infiling cabinets in separate departments
• How much do you spend on filing supplies per month?

Labor Costs

• How long does it take to retrieve a paper document?
• How many people handle each document?
• How much time does it require to file a paper document?

A Sample ROI Calculation

To calculate an ROI for a small office, we'll use a financialadvisors office as a sample. Financial advisors generate paper witheach new order, trade or account and the industry is regulated byFINRA and the SEC. This sample office will consist of two advisorsplus five support staff for a total of 7 people. Let's assume thatit's an average office and generates 100 new documents a week (Thisis a fairly low new document count, but helps prove the point thatEDMS systems generate a great ROI). This office has been inbusiness for 10 years and has a row of 10 filing cabinets in theback room. The spreadsheet below demonstrates the payback.

Notes on ROI Calculation

By now it is evident an EDMS can be a very valuable tool forsmall- to mid-sized businesses. The ROI calculation portrayed wasdone without taking into account the following factors. Lostdocuments become a thing of the past. The powerful search toolsbuilt into an EDMS make it virtually impossible to lose a document.In our sample office that generates 100 documents a week, 7.5 ofthem will be lost requiring the document to be recreated at a costof $220 each. If the paper-based system being used is veryefficient and this loss is reduced to four percent, the total isstill a cost of $880/week. If the EDMS is inefficient and has aloss rate of two percent the savings in using an inefficient EDMSis $440/week or 22,880/year. It's hard to calculate how much timeand effort is saved just by not losing documents.

Misfiled document also become a non-issue. Again the powerfulsearch tools built into an EDMS allow misfiled document to beeasily found and re-filed in the correct place. At a misfile rateof 3.5 percent and a cost of $120/misfiled document, the sampleoffice will save an additional $420/week or $21,840/year. Misfileddocuments are a huge problem and can turn an office upside downwhen looking for misplaced documents.

Answering a customer's query while on the phone with them isalso a source of significant savings. Imagine the followingscenario – a customer calls in with a question about their lastorder. If the customer service representative can pull up thedocument on their screen and answer the question right then withouthaving to pull the file and call the customer back, a huge timesavings is generated for the business. It is also more efficientfor the customer and the telephone tag game is avoided. Being ableto email the customer a copy directly has the same benefit.

Another time saving illustration not reflected above is usingelectronic workflow to distribute and route documents through anorganization. Think of the time used in moving paper from one pointin the company to another. Some companies still have a person thatgoes around and picks up paper documents and moves them from onepoint to another. With an EDMS this function is eliminatedentirely.

The worksheet used in this sample ROI calculation can bedownloaded at http://www.cabinetng.com/downloads/ROI-Calculator.xls.Take a look around your office and plug in numbers that make sensefor your business and see what your ROI would be.

(Andrew Bailey is president of Cabinet NG.)