Expert RoundTable: Technology Purchases

October 1st, 2005

By Patrick Lunsford
Editor, insideARM.com

Our Expert RoundTable on collection technologies brought together owners and managers of large and mid-sized agencies to discuss how they use technology in their operations. The discussion revealed that to successfully upgrade to new technology, one must focus as much on how the purchase is made as on what actually gets bought. Successful purchases generally follow a five-part process that involves planning, budgeting, executing, implementing, and measuring return on investment (ROI).

Planning

  • Let your long-term business strategy define your technology needs: what solution will enable execution of that strategy?
  • Choose technology vendors who will be good long-term business partners.
  • Understand the timing of technology purchases:
    • Days or weeks: web-based technologies
    • 2 – 4 months: collection technologies that require some infrastructure, such as predictive dialers
    • 1 – 2 Years: enterprise systems & software

Budgeting

  • Transaction-oriented technologies such as skiptracing and payment processing tend to be treated as ongoing operational expenses.
  • Enterprise systems generally involve capital expenditures and are depreciated over time.
  • Technology investments can comprise up to 80 percent of a company’s capital expenditure budget and amount to 4 or 5 percent of revenue annually.
  • Maintenance on technology amounts to roughly 2 percent of annual revenues.

Executing

  • Create investment committees to review and evaluate opportunities.
  • Set benchmarks for technology investments, such as only reviewing those that will lead to 5-10 times ROI.
  • Integration is critical for higher ROI – new technologies should meld with existing systems.
  • Negotiate beyond price: vendors have demonstrated a great deal of flexibility on terms other than price, including service levels and training hours.
  • Negotiate for mutual benefit: keep in mind that your vendor will be a long-term partner.

Implementing

  • Successful implementation goes beyond installing hardware and software – it requires managing business processes.
  • Take the opportunity to reevaluate the business processes that you are currently using.
  • Use internal training teams to promote use of the new systems and to promote consistency on the collection floor.

Measuring ROI
Generally, technology purchases are evaluated the same as other investments. Financial metrics include:
o Revenue growth
o EBITDA growth
o Revenue per FTE
o Per-hour collections rate

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