Buying Software and Hardware to enable and in-house application versus outsourcing the application should come down to a solid business case that includes quantitative analysis in the form of a cost benefit analysis if outsourcing the applications needs, versus using ROI if buying a premise solution.
When purchasing software and hardware, the cost of capital formula’s of NPV or IRR should be used to determine the true cost of the ROI. Often times in my experience, the decision comes down to the company philosophy of building versus buying. The buying companies believe in focusing on their core competency and reducing cost and thus outsourcing all non-core functions. The building companies seem to focus on maintaining control.
The following list should be considered if your company is considering a OCR related document management solution for the automating of manual data entry of paper; and is comparing an in-house solution versus outsourcing this need.
- Inbound forms- paper or digital? If paper, they need to be digitized by using a fax service or scanners. If digital, are images skewed or of poor quality?
- OCR software does not read poor image quality or low dpi images very well; the image will need to be enhanced for an accurate read, so this requires another software package.
- What kinds of forms are being received? Structured or unstructured. OCR software alone is not very accurate with unstructured forms. Will the software vendor give a guarantee for the accuracy claims? How will you handle false positives?
- What accuracy rate is required to guarantee a reduction in FTE’s for the data entry task, this is an important component of your business case. In other words, labor can be both a fixed and a variable cost. How will this apply to your data entry operations scheduling?
- What is the lifespan of the hardware and software before it is obsolescent for your IRR formula? We see as little as 6 months with a maximum of 18 months. Remember Moore’s law.
- How will the OCR software interface with an Image archiving solution and what is the capital expenditure for archiving hardware and software?
- What is the annual cost for hardware, software, training, maintenance, and implementation for an in-house OCR solution versus the transactional cost of using an OCR Service? How much will the learning curve cost?
- When considering the capital expenditures equation, is risk part of your discount factor for the NPV equation for a premise solution?
- What is the cost of implementation delays?
- What is your cost for processing an order today? Consider both direct and indirect cost. Paper processing costing tool
For speciality applications like OCR document management enabling automated data entry, one must consider both the hard cost and soft cost of processing paper when evaluating versus cost of doing nothing. Depending on the paper processing application, the indirect cost is often more than the direct cost. For example, consider the cost of mistakes caused by data entry errors. They should include both direct and indirect cost associated with keying mistakes like, re-keying the form, stocking cost, shipping cost, and the time on the phone by the CSR. Lastly, the impact on the customer should also be a major consideration in an effort to avoid churn.
With today’s movement toward SaaS and cloud computing, the case for outsourcing becomes even stronger toward renting versus buying. This question comes back to the old business principle of economies of scale. Does it make more sense that a company can perform this specialized task of data extraction better than a Service Bureau whose sole focus is on lifting data from paper?
For more information on outsourcing your paper processing needs, feel free to contact Kevin McQueen.