Many companies wonder if it makes sense to invest in technology to digitize their processes, given the perception that things work as they are. Like any investment made by a company, there must be objective variables that help in decision making.

In this article, we tell you what steps and what variables you should consider before making the decision to invest in a technology project that automates the Purchasing and Treasury processes.

1. Understand purchasing and contracting volume, along with transactional volume

Understanding the volume of purchases and contracting that a company makes annually is critical to understanding the categories that may be subject to optimization. Not all categories present the same opportunity to obtain savings and their level of criticality for the company must also be considered.

If the volume of purchases and contracting is low, the optimizations achieved with technology will be proportional and the cost of this, therefore, should also be reduced to ensure that the efficiencies obtained pay for said technology tools. On the contrary, if there is sufficient volume in these items, the cost of technology tools can become a residual cost. All of these criteria apply equally to the Treasury transactional volume in: number of invoices, tax certificates and payments.

2. Understand the human capital assigned to each part of the process.

Different departments throughout the company are involved in the Purchasing and Treasury process, so understanding what proportion of each team’s time is allocated to supply chain fulfillment (from plan to payment) is relevant to determine which parts of the process have a lot of load and/or reprocessing, so they could be optimized. In the end, we seek to understand in hours worked how much each part of the process is worth.

3. Understand the total cost when the technology tool is up and running.

When the technical elements and the detected improvement opportunities that the technology tools will solve are fully identified, there must be a review of the costs associated with the implementation and operation of the technology to avoid surprises and cost overruns.

4. Compute efficiencies and savings

Depending on the type of solution implemented, on average savings can be achieved that can range from 1% to 20% of total purchases and expenses. Where, in addition, efficiencies due to reduced transactional load are included. All savings and efficiencies must be reasonably considered as “new revenue” along with all “costs” associated with the technology solution.

5. Profitability and Time Variables

Finally, the net flows obtained from adding all the savings/efficiencies and subtracting all the costs in a time horizon must be discounted at the opportunity rate that the company has, for the investment stipulated for any type of project. Technology projects compete in the same way with any other type of project that the company has for limited available resources.

The main variable to consider is the net present value, which must be greater than 0 once the flows are discounted. However, there are additional indicators that can support decision making, which in order of relevance are: IRR, ROI and Payback.

Given that the level of complexity of a technology project can vary, it is recommended to use at least a 3-year horizon that allows capturing all the costs associated with the implementation and operation of the technology, along with the measurable benefits.

Other non-financial variables

There are solutions that offer intangible benefits that are not easily measurable, but that should also be considered in the final decision. In Purchasing and Treasury digitalization tools, some common attributes are: transparency, traceability, security and comprehensiveness of information.