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Beyond hard numbers: getting ROI from ‘digital’

The default mentality when it comes to making the decision to commit funding to digital initiatives is to seek hard evidence of Return on Investment (ROI). However, there is more to ‘value’ than hard numbers alone, but to see this requires a shift to thinking differently about the problems being faced and the complexity of questions being asked.

The first wave of Aurecon’s Our Digital Futures market research – The Digital Landscape – identified the need for organisations to change to stay ahead of the digital curve. In this article, Chris Needham, Defence Digital Leader at Aurecon, examines the importance of shifting this mindset and the requirement for openness to change often before ‘hard numbers’ are available to demonstrate any specific value of that change.

When organisations look for hard evidence from ROI before treading into new territory, if these numbers aren’t instantly forthcoming, any pursuit of a digital journey often stops.

Shifting this mindset is a concept difficult for the construction industry – an industry that, broadly speaking, does not change well. The last time we had a change at this level, there is no parallel.  Some argue the move from manual drafting to CAD was equivalent, however that change in medium – not in method – wasn’t a step change of paradigm shift like ‘digital’ is provoking.

Named as one of the least innovative industries (Chapman and Butry, 2008) in most countries around the world, the construction sector hasn’t yet harnessed the full potential of technologies to realise benefits that digital ways of working can bring – productivity gains, creating efficiencies, smarter working, new opportunities, measuring and delivering ROI. Barriers to fully achieving these benefits across the industry are far reaching: from many – often disparate – moving parts and adversarial contracts prohibiting seamless collaboration, to a lack of incentive or ability to move beyond the per-diem business model which limits productivity and stifles innovation.

We are seeing some potentially game-changing moves in how information is managed during delivery phase using ‘digital’ (i.e. Aurecon’s certification for excellence in BIM in design to new international standards ISO 19650 part 1 and 2). Yet moving beyond this, our industry currently does not do well at defining and measuring value and tends to see ‘the difficult to measure’ as ‘intangible’ which are often ignored in value calculations as a consequence.

We are also poor at establishing and maintaining benchmark data, which is critical in measuring improvement. Even when this data does exist, it’s not always suitable as a benchmark to measure the value or success of change because measurement has been against a counterfactual (e.g. ROI from BIM, means we are comparing against something that is the same but for the absence of BIM).

Against this backdrop of complexity, there is also a widespread expectation that a magic ‘digital’ button, a panacea, will solve all problems in an instant. This couldn’t be further from the truth. Implementation of digital ways of working constitutes significant change to any business and requires concerted effort both in planning and execution.

While ‘digital’ can simplify what is complex, change is not simple

Only 12 per cent of organisations which launch major change initiatives fully achieve their goals. To realise the potential of digital in a tangible, measurable way is challenging because it provokes changes required by organisations, asset owners, operators before any value from those changes hits home. Does that entity have the ability to host the information (graphical, spatial)? Do they have a resource to maintain that information so it doesn’t expire over time and become valueless? Does an organisation have leadership of ‘digital’? Is ‘digital’ demonstrably linked to business objectives? Is there a digital executive driving it? Do people understand what ‘digital’ is?

Answering these questions requires organisations to ‘change’, to do things in new ways, try new things, test new approaches. Given how poorly the construction industry tends to manage change there is a significant risk – if change isn’t managed well – that many will fall short of what is expected, leading to disappointment and/or disillusionment and ‘digital’ being made the scapegoat for poor project outcomes – as has been the case many times with BIM. This needs to be actively combated through realistic expectations, sound planning, effective change management and persuasive leadership. This starts with assessing how we understand value and measuring what we should, not merely what we can.

Common starting points to measure ROI are less time, less cost and higher quality. While ROI as a metric is typically a number, these quantitative measures are still based on value expressed in a number of ways. Knowing what constitutes value and how to measure it will generally assist in recognising improvement. 

However, as practical application of digital is continually evolving, there are challenges in isolating ‘digital’ as a single variable linked to specific benefits or impacts. To quantify benefits (i.e. determining ROI from future change) beyond hard numbers, ROI needs to be reflective of how well the implementation of a change has progressed over time. The focus shouldn’t be on attributing an ROI to ‘digital’, but on investing in improvement of project delivery processes, of which ‘digital’ may be part of. 

To do this, we must focus on outcomes – not the name of the methodology (e.g., Building Information Modelling (BIM), Virtual Design and Construction (VDC) or Digital Engineering (DE)). This is where BIM missed a trick – because of blurriness around what it could be and what it could deliver, there was a resultant use of a simple term (BIM) in place of something that is much more complex. Saying ‘we do BIM’ or ‘we do digital’ has little value, whereas saying ‘we leveraged the information gathered during design to reduce onsite occupation during construction’ is a much more specific and useful descriptor of what was achieved. It demystifies the hocus pocus and brings focus back to outcome and resulting value.

It is critical to define how and when success will be recognized and ask how things will be different as a result of the change. When people ask ‘what’s the ROI?’ they’re really asking: ‘what sort of return should we expect from improving the way we do business; and how quickly can we recoup the necessary investment?’

They’re often also asking ‘How will this change help, and do you have any proof so I don’t end up being held responsible if it doesn’t pan out as expected?’ Perhaps a healthier question is ‘what sort of return CAN we achieve from improving the way we do business, and what will it require of us to best do this?’

It’s about your capacity to deliver

Whatever digital ways of working are embraced, if we look at them in the right way it will improve our chances of success in getting value out of them. Taking the narrow view – focused on seeking only numbers as ‘evidence’ that implementation of ‘digital’ will be economically worthwhile – is devoid of a genuine attempt to understand what the change will require, and what it will deliver, to whom, when and how. Sometimes it’s used as an excuse to not change.

Ultimately digital ways of working are enablers to achieve benefits, rather than the cause. They are ways to deliver projects better, to serve us as people and our organisations, and to support that very thing we are chasing. Expectations will be better aligned from the outset, enabling the full possibilities and value to be realised if we acknowledge that implementing digital ways of working will provoke the need to review how we define and measure value, existing processes, skills, leadership, strategy, the way we do business, and allow it the space to enable disruption.. This is effective leadership. This is responsible stewardship of funds.

The first wave of Our Digital Futures was released in July 2019. The research will be released over three waves as The Digital Landscape, The Future of Digital and Your Digital Strategy.

To learn more and read the full report for the first wave, visit ‘Our Digital Futures’ at Aurecon.

Are you looking to determine an ROI of future change, particularly as part of a business case?

Consider these questions:

  • When was the last time the/your organisation executed a fundamental change to the way it operated? What was learnt?
  • Who will lead the change, and how well equipped are they?
  • What is the organisation’s cultural attitude to risk and failure? Will this support or inhibit the change?
  • What issues will it solve, i.e. where is the value of the change to the organisation, and how will it be recognised? Where will it leave the organisation if it succeeds, or if it fails?
  • How will success/improvement be recognised and/or measured? What benchmarks are useful and appropriate? What are the consequences if the predicted returns are not achieved? What constitutes an acceptable margin of error?
  • When considering pilot projects, what constraints are prohibitive? How will they need to be dealt with? Who are the stakeholders for the change and what are their chief concerns?
  • What would the impact be on the organisation (its people/culture, processes, technology/systems, data):
    • If the change were to be achieved?
    • If change were to fail?
    • If no change was sought?
  • What risks would need to be mitigated before or during implementation?
  • What opportunities would be availed?
  • How will ‘benefits capture’ be supported (or otherwise influenced) by the procurement method and/or contracts?
  • When will the potential benefits be realised? Benefits expected to be achieved only during Capex phases will be limited, given the finite opportunity to do so. Planning is essential to improve the chances of success. Can they be grouped for better understanding?
  • How does the intended contractual framework support the capture and distribution of benefits? Does it incentivize or inhibit this? 
  • Who do the potential benefits accrue to?  What dependencies apply? How are they distributed? Are they direct or indirectly accrued? (e.g. capital cost reduction vs. labour cost reduction being passed through over time).
  • What level of precision is expected in the ROI forecast? Does present value discounting need to be factored in? What duration does the ROI apply to?

About the Author

Chris Needham is a digital expert at Aurecon. He has worked in the architecture, engineering and construction (AEC) industries for 18 years in Australia, Singapore and the United Kingdom.

This article was originally published on LinkedIn Pulse as Getting ROI from 'digital' takes more than just hard numbers; it takes change' by Chris Needham.

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