Last week, we discussed how the use of video conferencing has the potential of increasing productivity and efficiency by reducing unproductive travel time, preventing meeting delays, creating shorter & more structured meetings, and providing faster exchange of information. With video conferencing, and the data collaboration tools that are now used with it, individuals can get information when it is easiest for them, on a real-time or delayed basis. By increasing usage of video conferencing, organizations will quickly see a financial return on investment. This is part two of our series on driving video conferencing ROI. Part one can be found here.
Return On Investment
Understanding the value obtained by implementing video conferencing helps management understand why video conferencing should be viewed as a necessity, not just a nicety. While many view the benefits of video conferencing to be measured with soft dollars, in reality those who have identified useful applications have had no trouble developing a return on investment to justify both their initial capital expenditures and their ongoing recurring costs. By calculating a return on investment it is easier for management to see the value of video conferencing and, thus, understand the need to continue growing the use of the technology. Without understanding this value what often happens is that when one champion of the technology departs another is not easily found. When value is understood everyone wises to claim the deployment and usage of video conferencing as their idea!
Types of return on investment (ROI) calculations for video conferencing include travel cost savings, increased productivity, and time efficiency.
Travel Cost Savings
Using video conferencing can reduce travel costs. By using video, trips can be avoided, thus saving the cost of travel. For example, one company found they achieved a return on investment after only 67 days because they paid for their equipment by not traveling.
By increasing productivity an organization can improve their response time to market or the time it takes to handle repairs. A package goods company used video conferencing to increase productivity enabling them to get a product to market three months sooner, which resulted in productivity & cost savings of millions of dollars. The sooner they get their products to market, the greater the revenue.
Business Case Example
Using video conferencing to squeeze more hours into a day allowed one organization to accomplish more in a shorter time period. This improved time efficiency resulted in more business being accomplished and improved the bottom line impact for the firm.
Following is a sample business case formula for calculating the return on investment for video conferencing. This formula can be used in its entirety or broken apart, depending on the application requiring justification.
Videoconferencing Cost Justification Explanation of Categories and Formulas
A. The number of meetings held during the course of a year that could be displaced by videoconferencing is generally 20 to 50 percent.
B. Estimate the overall average meeting length. Videoconferences tend to be 20 to 30 percent shorter than in-person meetings.
C. Estimate the overall average number of attendees at a meeting. Videoconferences range from two to 20, but the average is four to six participants.
D. The number of meeting attendees who travel – usually 50 percent of the total number of participants.
E. Based on an overall annual remuneration of $60,000 (including bonuses) for the average attendee, add 30 percent overhead for benefits and divide by 1,900 hours worked per year. The average hourly compensation is $40 / hour.
F. Multiply the number of meetings by meeting length by average number of attendees by average wage per hour (A*B*C*E).
A. The total trips between two sites being analyzed (number of travelers * the number meetings or A*D).
B. Total travel costs including ground travel (personal mileage, rental car, taxi), airfare, meals and lodging.
C. Multiply number of roundtrips by the average cost per roundtrip (G*H).
A. The average length of time it takes a traveler to travel to and from the remote site.
B. The inverse of the time a traveler is actively pursuing work-related activities while traveling. If a traveler works 50 percent of the time, the traveler is non-productive 50 percent of the time.
C. Same as the average attendee wage (E).
D. Total trips between the two sites being analyzed (G).
E. Multiply the average travel time by the percent non-productive travel time by average traveler wage per hour by number of roundtrips (J*K*L*M).
A. Multiply number of meetings displaced by the videoconference meeting length (A*B).
B. Based on average facility / equipment costs of $100,000; a 50 percent utilization factor (4 hours per day); and with capital costs amortized over 5 years (includes accepted depreciation standards) – the cost per hour of one videoconferencing room is about $20 per hour (2 rooms are required).
C. Average cost per hour of usage is $75.
D. Add equipment / facility costs and transmission costs (P+Q).
A. Add annual meeting costs, annual travel costs and cost of non-productive time (F+I+N).
B. Add annual meeting costs and annual videoconferencing costs (F+R).
C. Subtract the cost of videoconferencing meetings from the cost of displaced conventional meetings (S-T).
Expanded Video Applications
Video conferencing technology provides a powerful communications tool. There are many ways to make the most out of the technology. It is not just a meeting tool. Once the equipment is in place, video conferencing can be used as a production facility. Use video conferencing equipment to record content, stream information to many, produce information, and create “webinars”.
Video conferencing sessions can be recorded for playback at a later date. This feature is useful for individuals unable to make the meeting or for archiving information to be viewed at a later date.
Meeting information can be sent (streamed) over existing networks to multiple sites, allowing them to view the meeting real time and not leave their work locations. This allows for increased meeting participation from those at a distance.
Video conferencing technology can be used as a production facility to produce content to be disseminated to employees and customers. The information produced can be archived for retrieval at a later date or streamed to individuals as needed. Save time with HR training by using video conferencing equipment to present and record company policies. Create a special CEO message and send it out to all employees.
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