Business Process as a Service (BPaaS)
Evaluating ROI and cost effectiveness of BPaaS implementations
Business Process as a Service (BPaaS) is a cloud-based service delivery model for outsourcing business processes. It combines the best of all cloud-based services such as Infrastructure as a Service (IaaS), Platform as a Service (PaaS), and Software as a Service (SaaS) and business process outsourcing (BPO) offerings. BPaaS is designed to be service-oriented and connects to most other services through well-defined APIs.
Traditional BPO models operating through third-party service providers mainly aim to reduce labour costs. However, through BPaaS solutions, enterprises get the added advantage of automated processes delivered over the Internet through cloud-enabled software with economies of scale. The cloud deployment model could be public, private, or hybrid, with the choice being based on various factors. BPaaS takes BPO services to the next level by ensuring better business outcomes backed by modern technologies such as AI and machine learning.
Why BPaaS?
In today's digital transformation era, contemporary businesses often struggle to find a balance between managing costs and driving innovation to stay competitive. Optimised business models help enterprises unlock efficiencies driven by automation for improved margins. One of the most significant advantages organisations gain from BPaaS is the shift from capital expenditure (CAPEX) to operational expenditure (OPEX) as they grow or adapt to change. Also, BPaaS technology provides complete visibility into the OPEX to analyse and take corrective actions timely, where required.
Implementing a new business process in-house can involve significant capital outlay and time. BPaaS helps reduce both factors significantly, along with a few other benefits such as:
Cost reduction:
There are significant total cost of ownership (TCO) savings on infrastructure investment, maintenance, and software versioning and licences. Also, BPaaS services work on subscription or consumption-based models, reducing the cost further.
Scalability:
Robust cloud load mechanism methodologies prevent crashes from happening when large numbers of users access simultaneously.
Focusing on core competencies:
Cloud-based services have adequate cybersecurity and data loss prevention mechanisms. Businesses can thus invest their time and resources in their core competencies to boost business growth.
Staff optimisation:
Businesses can significantly reduce the staff required to maintain processes and infrastructure.
Enhanced operational efficiency:
BPaaS providers are experts in their field, ensuring maximum efficiency, quick turnaround time, and better-quality output.
Improved compliance:
BPaaS providers ensure compliance with changing industry regulations and standards, reducing risks of penalties.
And yet, implementing BPaaS is not an easy decision for most organisations. There could be initial high investment based on the choice of the cloud-based application, organisation size, business sector, processes, transaction scale, etc. Most decision makers evaluate the ROI to understand the cost implications.
What factors must decision makers consider for an accurate Return On Investment (ROI) evaluation?
Factors affecting the ROI
ROI is a measure of the increase in value of an investment over time. A positive ROI happens when the financial benefits achieved from the investment outweigh the initial investment. According to Investopedia, although it is a ratio, it is typically expressed as a percentage.
The ROI formula is: ROI = (Net return on investment/Investment) *100.
While calculating ROI for a cloud-based application, it is essential to consider tangible factors such as decreased capital expenditures, possibly increased monthly costs, increase in revenue due to faster feature enhancements, peak scaling capabilities, increased pricing due to better quality services, etc. The ROI calculation must also include intangible aspects, such as increased brand value, reputation, etc.
Some key factors to include are as follows.
TCO: BPaaS significantly reduces the TCO, as mentioned above in the benefits, translating to higher profitability. However, the TCO calculation must include the time and cost needed to switch to BPaaS.
Increased productivity: Almost all the BPaaS benefits mentioned above, translate to increased productivity.
Provisioning Time: In a highly competitive market, you lose customers if the time to hit the market is lengthy. BPaaS reduces provisioning time leading to market gains.
Risks and regulatory compliances: With data privacy taking on more significance with regulations such as the General Data Protection Regulation and the Second Payment Services Directive, the penalties of any breach can prove expensive. However, if there is a lock-in period with the BPaaS provider, add that risk to your ROI evaluation.
Measurable impact: The transparency of the BPaaS technology layer enables measurement of actual impact through enhanced visibility. BPaaS providers can optimise your technology stack for easy upgrades and integrations. Backed by automation, BPaaS analytics can also identify improvement areas. All the above factors must find a place when you evaluate the BPaaS ROI.
An Everest Group study on the viability of the BPaaS model for companies of various sizes found it helped companies of all sizes with savings compared to the traditional IT+BPO models. While small companies realised 35-40% savings, mid-sized companies found 25-30% savings, whereas big enterprises got 10%.
BPaaS implementation is becoming a matter of sustainable survival for businesses across various sectors. BPaaS pilot projects through partial implementation and phased upgrades are an option for those businesses who like to test the waters. The ROI for many BPaaS cloud-based applications may be negative in the first year and then provide substantial gains over a three-to-five-year period. Hence, ideally, organisations must evaluate a BPaaS ROI over three to five years.
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