Implausible ROI calculations – an example

Return-on-investment calculations make sense, but law departments can abuse them if they try to justify investments based on unrealistic extrapolations on “loss of productivity.” The typical ROI argument goes something like this:

It takes a typical lawyer six minutes each day clearing spam from Outlook. We have 100 lawyers. Therefore, we are spending 600 minutes (10 lawyer hours) each day clearing spam. Our fully-loaded internal rate is $200 per lawyer hour. Therefore, we are spending $2,000 each day clearing spam. With 250 business days each year, we would recover $500,000 each year by implementing effective spam protection.

Baloney.

The problem with this analysis is that while apparently logical, it ignores real life. To make this type of claim for savings, a law department must analyze actual behavior. The presumption in this argument is that if you get rid of spam completely, each attorney will bill work six minutes more each day and the company will benefit from that saved time to the tune of $2,000 additional legal services each day. If IT staff or vendors argue this kind of position, they should be chagrined.

(See also my post on May 1, 2005 on bill review software and ROI and May 14, 2005 on knowledge management ROI.)