How do you measure return on investment (ROI) in the security market?
Measuring return on investment (ROI) has long presented a challenge to the security marketplace. Investment in security is often viewed as a necessary cost whose benefits cannot be measured. For example, how do you measure the value of an event that doesn’t happen (i.e., that has been prevented)? The difficulty of measuring ROI doesn’t diminish customers’ appetite for it, however. Today’s choosy customers are driven more than ever by the bottom line and expect any and all of their investments to show a healthy return. Therefore, we asked this week’s Expert Panel Roundtable: Is it possible to measure return on investment (ROI) in the security market? How?
Security ROI can be evaluated through two lenses: (1) Setting up a new security operation from scratch and (2) Investing in a company’s existing security operations. Establishing ROI for the former is the most challenging task. Companies invest in security to protect people and property (including intellectual property). A crime risk analysis coupled with a valuation of the company’s assets will provide raw numbers, but the most difficult and controversial task is to place a price on the people element. While individually we may believe that human life is “priceless,” no company is willing to invest unlimited resources in security. Establishing ROI for new investments is much easier to analyze by evaluating the efficiencies and additional risk mitigation of the new investments. This incremental, modular approach is the best way to evaluate the overall ROI of the security operations and to guide future investments.
In some cases, ROI is more measurable than in others. One such area is the Retail Sector of loss prevention. Retailers still deal with a lot of cash — an environment highly susceptible to theft. Advances in big data vetting and business analytics have had a major impact in fraud reduction for retailers who invest in these new solutions. The results are fast and undeniable. New cloud-based tools that integrate point-of-sale (POS) and video in a YouTube-like experience enable loss prevention analysts to review hundreds of suspect transactions integrated with video per day vs. a few dozen when they manually request video clips. Using these tools, we have seen an LP analyst’s productivity increase from one case a week to more than one per day. The second most impactful savings is from identifying problem areas early. New Business Intelligence solutions catch end user-identified rules being broken the very first time.
In our market segment, it’s all about the manpower aspect of the equation. Our ability to reduce or even eliminate manpower needs enables us to show ROI of a year, or an even shorter timeframe. Not only do our solutions pay for themselves quickly, but the end user gets the “force multiplier” effect of not needing personnel at the entrances, so they can deploy them to higher-value, higher-impact tasks. ROI brings to mind other metrics that are important to consider. For example, security revolving doors or mantrap portals, equipped with piggybacking prevention technology, provide new metrics such as the probability of a successful piggybacking breach. This scientifically-derived information enables end users to calculate quantitative risk assessment. When an entrance is manned, it is difficult to get accurate metrics like these. But knowing how well the entrance is accomplishing the objectives for which it was purchased is crucial information.
In the security business, many manufacturers and integrators often rely on F.U.D (Fear, Uncertainty, and Doubt) to sell security systems in video and access control rather than a solid financial ROI for customers. The video business tends to be guilty of this more often; however, access control is certainly not without its issues. As a manufacturer of access control, one of our key markets is small- to medium-sized businesses, where a significant amount of key replacement still takes place today. In this market, a very simple ROI can be based on eliminating the need to re-core locks and issue new keys to employees. The same ROI calculation can be made in the commercial and education markets as well as in replacement of human assets that may be guards or administrative staff. More intangible ROIs can be calculated on loss of property, damage, and even facility utilizations using access control.
Calculating ROI based on something that doesn’t happen has been one of the professional security industry’s biggest challenges. For example, power surges and spikes and lightning strikes can disrupt or destroy security and surveillance systems. These power events happen every day, and they can both shorten the lifespan and increase the number of glitches in a system. Insurance may cover the cost of repairing material damage, but the downtime is often not covered and can quickly surpass the cost of surge protection devices or the cost of damaged equipment. Loss of security, surveillance and life safety system operations is costly on many levels, but can be avoided by having proper surge protection that is correctly sized and installed. By looking at the cost of repair, replacement and downtime and calculating savings, it is possible to create a what-if scenario that – while not precisely communicating ROI – tells a very compelling story.
The value of security is undeniable, but measuring it presents considerable challenges. Our Expert Panel Roundtable points to several strategies, including some that are specific to certain product categories. In our age of metrics and Big Data, crunching numbers is a greater emphasis than ever. Fortunately, many of those calculations also point to new ways to cost-justify investments in security technologies. And many benefits of today’s security systems – including those that impact other aspects of a company beyond security – can contribute to a healthier bottom line and faster ROI.