1. Cost/Benefit Analysis Making the Business Case for Records Management
Successful RMOs also have to be business professionals. It’s no longer a choice merely to be familiar with many business disciplines that are relevant to RM. Today's RMO must be proficient in all aspects of business management as governments try to trim expenses, improve productivity, and have to justify nearly every aspect of operations.
One tactic we can borrow from the business world is the cost benefit analysis. Conducting a cost benefit analysis is one of the most strategic and linear ways to support business decisions made in your government.
This presentation will address what a cost benefit analysis is; how it can make you more effective as an RMO; and why and how you conduct an analysis.
Karen Trivette Cannell, MLS
NYALGRO 2007

2. at the lowest possible cost.
To provide
the right information...
at the right place...
at the right time...
to the right person...
efficiently...
at the lowest possible cost.
Before we jump into the nuts and bolts of CBA, let’s perhaps state the obvious: records management supports risk management and business continuity planning. It identifies which records are vital to the running of government and supports business continuity every day but especially in the event of a disaster.
I’d like to share with you some sobering statistics: 40% of organizations which suffered a disaster went out of operation within a year; 43% never resumed practice and 29% ceased operations within 2 years; 93% of private businesses that had a major data processing disaster were out of business within 5 years. These statistics demonstrate how important records are to business continuity and why it is crucial to maintain control over your information assets.
Records management does just this: it improves control over your information assets, which has far-reaching benefits in freeing up staff time and other resources, and will help protect your government from various risks and wasting of resources.

3. A program for managing records involves…
Creation
Retention
Storage
Retrieval
Technology
Archives
Policy
A program for managing records involves…
Records management – economical and efficient administrative process for managing information [creation to disposition (destruction or preservation)].
It also is a process of maintaining information in a format (print or electronic) that allows for its timely access.
Effective RM programs will manage records
Creation
Retention
Storage
Retrieval
Related Technology
As Archives
Related Policies
As we discuss CBA, consider each and every one of these areas of your RM program and the opportunities each holds for your government and its citizens.

4. What is a cost benefit analysis?
An approach to cost justification
An analysis of an opportunity
A Cost Benefit Analysis (CBA) is an approach to cost justification in which the costs associated with a particular project are compared to the quantitative or qualitative benefits to be derived from that project. It is the analysis of an opportunity to demonstrate the benefits in cost savings in order to receive management commitment and support to implement. Of course, the critical part of this definition is the management commitment. Getting this commitment requires that RMOs be skilled in conducting and presenting a CBA – or obtain the skills to. Essentially, this means making the most credible business case you can for an identified opportunity.

5. What types of opportunities should require a CBA?
Adding staff
Introducing new technologies
Mobile shelving
Changing vendors
Remodeling facilities
READ QUESTION IN SLIDE
Usually the big ticket equipment purchases are thought to be the main type of opportunities. Certainly recommending the purchase of a new computer or mobile shelving system requires a thorough, documented justification. Today, however, CBA is being used for a wider range of opportunities, which are no longer limited to the purchase of high priced equipment.
An increased focus over the last years on making government leaner and more efficient has affected governments’ business decision making requiring CBA to be used for all major purchases, expansions, organizational changes, and so on.
What are some other purchase areas for which you’ve had to justify costs?
Upgrading existing software and/or hardware
Outsourcing or bringing service(s) in-house
Modifying workflow
Implementing (new) procedures
Relocating offices or a function

6. CBA Justification Hard dollar savings Soft dollar savings
Cost avoidance
CBA justification can be organized into three areas: hard dollar savings, soft dollar savings, and cost avoidance. CBAs have the potential of including any one or combination of these, and if included in the analysis, then it/they should be addressed in the CBA Report, which we’ll discuss shortly. Let’s look briefly at each of these through the lens of a few RM opportunities…

7. “Should our government outsource our microfilm
operation or continue to
perform it in-house?”
Hard dollar savings are quantitative, and by definition, easy to calculate; they represent actual savings that an RM opportunity will realize. These can include a reduction or out-right elimination of existing expenses such as for staff, supplies, or equipment. Hard dollar savings are easy to quantify and as such, tend to be broadly and readily accepted. If they positively support a CBA opportunity, then they can provide the strongest case or justification.
Cost/Benefits Analysis Opportunity: Outsourcing an in-house microfilm operation
Background: RM operations manages microfilm services. This currently includes microfilming, processing, duplicating, and quality control. All of the equipment is over ten years old and requires regular repair.
Hard Dollar Savings: Elimination of microfilm equipment (future replacement and maintenance) and supplies.

8. “Should our government or stick with our manual
automate our records
management operation
or stick with our manual
procedure?”
Soft dollar savings are qualitative and so they’re less tangible to calculate. They can include saving management time or freeing up records center space; both result in a benefit, but the expense tends to begin well after implementation and then continue well after.
SDS offer non-financial measures to support hard dollar savings; these may include public service levels and performance targets.
Cost/Benefit Analysis Opportunity: Automating a records management operation
Background: The Records Department is currently a manual operation. The RMO spends about ten hours per month tracking and calculating operational statistics and preparing records management reports.
Soft Dollar Savings: Reduction in management hours in support of management reports; frees RMO to tackle other tasks.
In the above example, the reduction is in management time (soft savings) not in management staff (hard savings). This soft dollar saving will gain back time which can now be applied to other management tasks. Soft dollar savings are certainly valid savings, however, as much as they can be quantified, they should be. In the previous opportunity, dedicated microfilm staff could be reassigned to other tasks; their hourly wage applied to needy areas of the program can be easily calculated.

9. “Should our government replace file cabinets with open shelving?”
Cost avoidance addresses reduction or out-right elimination of a future cost. The types of expense items that could be considered a cost avoidance are numerous from overtime and temporary staff to additional file equipment and leased space.
CBA Opportunity: Upgrading the Records Center with high density (efficient) open shelving
Opportunity Background: The Records Center currently uses (inefficient) vertical file cabinets. The center is running out of space and the has no additional square footage in its facility.
Cost Avoidance: Reduction in the future costs of (inefficient) file cabinets and elimination to construct or lease new space to accommodate the growing Center.
Also Hard dollar savings:
Office space; 4 drawer cabinet; Letter-size; Avg cost=$300; Holds 6 cu ft; Cost=$50 per cu ft
Storage space; Steel shelving; 32” x 42” x 88”; Avg cost=$300; Holds 48 cu ft; Cost=$6.25 per cu ft

10. The CBA Approach Preliminary Study Feasibility Study CBA CBA Report
A CBA should be approached as a process, beginning with a Preliminary Survey, and followed by a Feasibility Study. Together these steps help provide the necessary information to produce a CBA Report. As a CBA can involve an investment of time, these two surveys are valuable pre-steps with each requiring information that justifies if the next step is warranted.

11. The Preliminary Survey
Initial evaluation
Information about the existing situation
Assessment of potential
A Preliminary Survey is conducted as an initial evaluation of an opportunity. Its purpose is information gathering on the existing situation as compared to the CBA opportunity. As part of the Preliminary Survey, a variety of techniques can be used. These techniques include focus group input, staff surveys or interviews, observations, statistical and workflow tracking. Based on the data, an assessment is made regarding the potential of the CBA opportunity. If the prelim. survey's assessment is supportive of moving forward with the process, then you’re ready to take the next step: the feasibility study.

12. The Feasibility Study Finalizes data gathering
Assesses the data in detail
Furthers the analysis process
A Feasibility Study finalizes any outstanding data gathering, assesses the data in detail, and furthers the analysis process. The analysis of the data should address the short and long range impact of the opportunity. The impact could involve its effect (positive or negative) on the citizens, staff, operations, service or performance levels, and budget.
One of the most popular CBA opportunities is the introduction of technology. For a RM operation this might mean records management software or electronic imaging. A technology opportunity requires a particularly involved feasibility study phase.

13. Consider the effect of time Analyze the results
Identify the costs
Identify the benefits
Consider the effect of time
Analyze the results
After the preliminary steps you are ready to conduct the actual CBA. Cost Benefit Analysis is a relatively simple technique for deciding whether it is economically viable to make a change. To use the technique, simply add up the value of the benefits of an opportunity, and subtract the costs associated with it.
In its simplest form, cost/benefit analysis is carried out using only financial costs and financial benefits. A more sophisticated approach to cost/benefit analysis is to try to put a financial value on the intangible costs and benefits. This can be highly subjective and difficult to forecast.
These are the steps of a very basic cost/benefit analysis:
Identify the costs
Identify the benefits
The effect of time Analyze the results
Let’s look at these individually considering an RM opportunity: After executing a records inventory, the City of Welcome felt it would serve its citizens more efficiently and effectively while performing better records stewardship if it employed a geographic information system (GIS). The initial purposes for considering this pricey expenditure were to scan its nearly 10,000 maps and drawings (stored all over the city); this would simultaneously make the records more accessible while preserving the originals, some of which are 100 years old. The city also found it could better manage its physical assets, such as road signs, bridges, and parks given the reporting capabilities of a GIS.

14. The Costs Needs assessment/consultant services: $12,500.00
Staff training: 500 $10.00/h: $5,000.00
Geo-reference drawings: $5,000.00
Color scanner: $25,000.00
GIS software/consultant services: $40,000.00
Total: $87,500.00
Identify the costs. Costs may be ongoing or a one-time expense.
To install a fully operational GIS and prepare the staff to use it, the county estimated the costs would $87,
These up front costs wouldn’t be the only costs over the life of operating and maintaining a GIS; however, for our purposes, we’ll only consider these costs for now.

15. The Benefits Reduced overtime: $60,000.00
Unbilled sewer connections: $12,000.00
Recouped business license fees: $20,000.00
Total: $92,000.00
Identify the benefits. Benefits are most often received over time.
While undertaking the preliminary survey and executing a feasibility study, the city found that not only could a GIS satisfy the original applications, but also it could return other substantive financial benefits in the course of executing additional applications. These include:
Hard dollar savings:
– optimizing garbage truck routes
– for the following year the city estimates it could in overtime
– mapping city parcels with sewer connections which were not being billed
– possibility of of missing revenue in the next year
– using GIS to audit their billing files
– could next year in lost business license fees

16. More Benefits Soft dollar savings Cost avoidance
Higher level of customer service
More advanced records stewardship
Improved staff expertise
Cost avoidance
Compliance with GASB 34
Soft dollar savings:
Better customer service
Higher level of records stewardship
Improved staff expertise
Cost avoidance:
If a governmental entity, regardless of size, is required to have audited financial statements, then the financial statements should be prepared in accordance with Generally Accepted Accounting Principles (GAAP). Auditors would not be able to issue an unqualified opinion on the statements if the governmental entity does not comply with GAAP. The penalty for not complying with GAAP [which includes Governmental Accounting Standards Board (GASB) 34] would be a qualified opinion from the auditors, which would have an adverse affect on a government's bond ratings and the ability to borrow money (all creditors normally require audited statements).
Additionally, elected officials are held accountable for public funds, so compliance with GAAP and audited statements support proper accounting for public funds.
Although there are no hard and fast fines or penalties for non-compliance, a municipality would be unable to obtain a bonding agency because the books would not be in accordance with GASB 34 accounting procedures.
Given the reporting capabilities of a GIS, the city can easily and readily comply with GASB 34 requirements.

17. Cost / Benefits = Payback
Effect Over Time
Cost / Benefits = Payback
$87,500/$92,000 = 0.95 of a year OR
approximately 11.5 months
The effect of time can be built into the analysis by calculating a payback period. This is the time it takes for the benefits of a change to repay the costs. Many institutions look for payback over a specified period of time.
Payback time: $87,500 / $92,000 = 0.95 of a year = approx months

18. Analyze Results Is the payback period sufficient?
Analyze the results and assess whether the projected payback period is sufficiently small to make the undertaking worthwhile.
Is 11.5 months a sufficient payback for the initial investment? Only you can answer this question respective to your environment.
These steps provide final confirmation for whether the CBA opportunity offers the benefits initially projected. If the result of the CBA determines cost effectiveness, the data is used to support development of the CBA Report.

19. The CBA Report
The CBA Report is the package that sells the targeted opportunity. It should be thorough, well organized, clearly communicated, and factual. In order to be successful, the report's contents must provide decision makers with the information that will allow them to make a sound decision and take action.
The CBA Report can be designed and formatted in a variety of ways. There is no one-way or right-way to package the report. Many factors are to be considered, including:
the complexity of the topic of the CBA
understanding/awareness by decision maker(s) of the CBA topic
internal standards regarding analysis, recommendations, costing, presentation packages, system, and so on
timing regarding the government's current financial status, point in the fiscal year, other pending changes
The beginning of the repost should provide the reader with information that either introduces or summarizes the key aspects of the report. In our busy world, these sections might be the only sections that a decision maker would look at before deciding to throw it on the "pile to read later" or to keep reading.
The middle section is the main course. This is where the primary information is presented in detail. The who-what-where-how-why questions are to be answered in this section. In developing the report, it is important to keep in mind that it is a report not the "greatest story ever told." Even in presenting the detailed information, it should be concise.
Depending on the complexity of the CBA opportunity, an Appendix is a good idea to include where reference detail can be housed. This will support more in-depth inquiries and allow the middle section of the report to flow unencumbered.

20. Methodology of the Study Recommendation Justification Implementation
Executive Summary
Introduction
Scope and Purpose
Methodology of the Study
Recommendation
Justification
Implementation
Summary
Appendices
Executive Summary…so important we’ll dedicate some time to it after we discuss the other components…
Introduction: Presents background aspects regarding the CBA
The systems study was authorized by Geof Huth, Director of GRS, NYSA. The study began on May 1. The study Project Leader was David Lowry, Mgr., RAS; primary study coordinators were...and so on.
Scope and Purpose: This is important as it is imperative that the decision maker reading the report completely understands why the CBA was conducted.
The study was conducted for the Office of Real Property Services. The purpose of the study was to
1. determine the feasibility of automation
2. eliminate a 10 week backlog of processing
3. improve the ongoing workload management
4. decrease temporary services costs.
Methodology of the Study: Outlines the techniques used to gather the data. Explaining the methodology aids in validating that the study was thorough in its approach and accurate in its findings.
On March 1, the Records Management Review Committee approved a six week study of the ORPS records activities. The study took place from May 1 to June 15 in two areas: active files and permanently scheduled records. The study included all personnel and methods employed to gather data were interviews, surveys, observations, and so on.

21. Recommendation: Present in clear terms the actual recommendation, its benefits, and any supporting detail relevant to the recommendation.
This report provides data and cost justification totaling $65,000 in annual savings in support staff and processing activities in the central files operation. To achieve these savings, we recommend the operation be converted to an automated records tracking system. The conversion will require staffing, training, hardware, software, supplies, floor plan, and so on.
Justification: Hard dollar savings, soft dollar savings, and/or cost avoidance information are outlined.
When it comes to selling decision makers on a financial investment, no matter how cost effective, they expect to see your arguement in financial terms. When presenting justification information, it’s better to use a table, graphic, or spreadsheet.
Implementation: Presents the projected project plan for implementing the recommendation. A timeline or milestone charts should be used to enhance this section.
Summary: Executive wrap-up. It provides one concluding opportunity and reviews the key points. This section should be dynamic and compelling.
The recommendation will result in financial savings of $92,000 annually. It will provide improved employee productivity and morale, elimination of lost files, faster access to information, and overall improved customer service.
Appendices: Add if they make a contribution to your case rather than confusing or cluttering it.

22. Executive Summary Provides an overview to the CBA Report
States the report's purpose, the nature of the opportunity
Summarizes the recommendations
Outlines the benefits
This section is the first to be reviewed by the decision maker(s). In addition to being clearly and concisely communicated, it must be able to grab their interest enough that they will want to reader further.
The RM department has been successful in supporting proactive measures to ensure efficient records and information management. At the request of the Board of Supervisors, RM was invited to analyze the city’s geospacial records and information holdings to improve operations. The RM recommendation is to implement a GIS system. The cost of the system is $87,500, with a payback in 11.5 months. The benefits of this system include improved processing time, more efficient and effective recordkeeping, and a reduction in labor hours. Again, the more quantitative you can be, the better.

23. The King of Justifications
ROI
The King of Justifications
A return on investment, or ROI, is also an approach to cost justification that compares proposed costs to predetermined standards for acceptable investment.

24. ROI Formulas
There are many formulas for calculating ROI, but today, I only want to cover a few key and relatively simple ones.

25. Basic ROI [Gains – Investment Costs]
ROI calculations are a tool for gauging the effectiveness of individual projects or investments within an organization's or government’s activities. Like CBA, ROI is calculated as a ratio, this adapted ROI divides the total costs of an investment into the net gains produced by the investment. The net gains, of course, are calculated by subtracting the total gains by the investment costs. In this model, the result of the calculation must be greater than 1 to justify the investment. The greater the ROI is above 1, the more financial sense the investment makes.

26. Office Move ROI RS – CS _______ = ROI CS
RS = Reduction in office space cost
CS = Cost of mobile shelving
RS – CS
_______ = ROI CS
The classic ROI model serves the records manager well as a tool to justify specific elements of a records management program. For example, an organization moving to new offices is often looking for means to reduce the total floor space required. The records manager can usually demonstrate that the employment of compact mobile shelving will reduce the amount of floor space required for filing. A straightforward ROI calculation can be made by dividing the costs of the compact mobile shelving into the net savings of office space rental possible through the use of mobile shelving.

27. Imaging ROI RS – PS _______ = ROI PS
RS = Reduction in office storage cost
PS = Personnel + System costs
RS – PS
_______ = ROI PS
This sample imaging project is focused on improving a business process, simplifying a payment system, and improving customer service. The improvement in managing active records combined with financial results can far exceed the personnel and systems costs. Real costs will tell the tale…
Additional ROI can be realized in the form of reduced potential discovery and storage costs. Records kept past their disposition dates are discoverable in a lawsuit - and can add a significant cost associated with discovery. While data retention and back up have been a priority in recent years, in reality, very little information is actually needed for institutional memory and nearly all information (by most accounts more than 95%) should ultimately be destroyed. When records are kept only as long as they are required, and expired records are destroyed on time according to records schedules, records can be more easily found and produced, resulting in more efficient and less costly discovery processes; not to mention the storage savings and associated costs.

28. ∞ Risk of Inaction FI = Financial loss from inaction [Negative value]
CI = Lack of investment (= 0)
-FI – CI -FI – 0
_______ = _____ = [negative ROI]
CI 0
Another way to look at ROI is from the risk of inaction perspective. In many ways, this ROI is the most fundamental justification for a records management program or any component of one. Ignoring records management deprives an organization of the many benefits of a good program. Calculating this ROI is extremely difficult because it depends on factors that can only be roughly estimated or projected. Don’t let this stop you from trying!
For example, one risk of inaction is incomplete or inaccurate information. The poor decisions that result from incomplete or inaccurate information are frequently caused by the lack of structure in the classification and maintenance of information. The dramatic, increased dependence on electronic records has only exacerbated the problem. The avalanche of digital information demands consistency and a process to retain only the most complete and accurate information. The malleability of digital information allows the recording of several versions of information (e.g., Excel spreadsheets) without adequate documentation identifying the most complete or official version. Lack of attention to the management of electronic records, especially those maintained on individual desktops, greatly increases the likelihood of mistaken, poor, or even disastrous, business decisions.
Another common risk of inaction is the loss of important information. In some instances, this is a vital records issue – one that has significant potential financial implications. However, the exact cost or loss is often impossible to predict completely. One of the lessons learned from the 9/11 tragedy is the volume of information that was not included in organizations' or governments’ disaster recovery or vital records programs that proved crucial to the resumption of business. In other cases, inaction can result in a lack of compliance to statutes or regulations, leading to substantial financial penalties.
Calculating the return on investment (ROI) for records management efforts is sometimes problematic and can never be a simple financial formula. Many important elements in an effective records management program (e.g., risk management, disaster avoidance, and compliance) do not and may never produce financial gains. Thus, the use of ROI calculations to justify RM operations must be carefully defined and focused to reflect actual results. ∞

29. Closing words… Managing records is your legal responsibility
Address all records
There are simple strategies to enrich your program
You are not alone!
A government office with files askew, stacked on top of file cabinets, and in boxes everywhere creates a poor working environment. The perceptions of customers, and the image and morale of the staff, though hard to quantify in cost-benefit terms, may be among the best reasons to establish the best records management program your government can afford.
So keep these points in mind as you make your business case to decision makers:
Managing records is a legal responsibility
Address all records
Regardless of format, from creation to final disposition
There are simple strategies to keep a program healthy and growing
More than what we’ve outlined here today
You are not alone!
Ask for help from your colleagues and the State Archives

30. Help Contact the State Archives Network with peers Join
Call your Regional Advisory Officer
Network with peers
Join
NYALGRO
ARMA International
Society of American Archivists
Contact the State Archives
Staff are available to give you some direction
Call your RAO first (they’re the first line of defense)
Or check out the website for publications and workshops
Take advantage of State Archives training
Network
Talk to others who’ve addressed similar issues
Join
Consider joining a professional organization or listservs
Your RAO or Albany staff can help get you contact information

31. Thank you for listening!
Thank you very much and I’ll be happy to take questions.