Calculating BIM's Return on Investment22 Sep, 2004 By: AIA ,Rick Rundell
A simple formula helps determine if a new technology is the right one for your firm.
With the advent of BIM (building information modeling), the building industry is coming to appreciate that technology can radically transform the building design and construction process. But before committing the funds to purchase that technology, the bean counters in an organization will probably insist on ROI (return on investment) analysis.
At that point, the folks tasked with producing the numbers usually grimace in pain and start twitching. But there's an upside to ROI analysis. Although primarily used to justify a purchase, calculating ROI for a technology investment forces those involved to reach an agreement about why they are spending the money and what results they expect.
This month's article delves into ROI for BIM solutions -- which variables to consider, a sample formula and typical numbers, and a heads-up as to what the ROI metric overlooks.
ROI analysis is one of many ways to evaluate a proposed investment. It compares the gains anticipated from an investment against the cost of the investment.
The ROI approach can evaluate many types of corporate investments, from R&D projects to training programs to fixed-asset purchases. The more complicated the investment, the more complicated the formula becomes. Just think about calculating the total cost of a departmental Microsoft Office upgrade versus calculating the total cost for a worldwide ERP implementation! And as the investments get larger, the creativity required to calculate the ROI becomes more significant, eventually entering the realm of black art.
ROI for BIM Investment
Mercifully, calculating the ROI for a design system can be relatively easy. The only hitch is that you need to consider the changes in user productivity during ramp-up. The diagram below (figure 1) illustrates what happens after you put a new system into place. There's an immediate dip in productivity as users get up to speed on the new system. With time, productivity climbs back to where it was with the original system and levels off at a higher point as the new technology takes hold.
Figure 1. Visualize what happens when you put a new system into place.
A standard formula for calculating the first-year ROI is in figure 2. It uses just a few key variables related to system cost, training, and the overall productivity cost savings of a system. The next figure shows the formula variables (figure 3).
Figure 2. A standard formula for calculating first-year ROI.
Figure 3. The ROI formula variables.
The numerator represents the earnings portion of the equation, which comes from an increase in human productivity. The increase in average monthly productivity is represented in the left bracket (B - (B / 1 + E). The right bracket (12 - C) is the number of months in a year minus months in training (C). If the user needs three months to become as productive on the new system as on the old, then there are nine months left in the year to benefit from the productivity gains.
The denominator, which is the cost portion of the equation, includes the cost of the system (A) and the cost of the productivity lost, in terms of labor cost, as the user learns the system. This second term is the product of the monthly labor cost (B) multiplied by months in training time (C) multiplied by productivity lost in training (D) -- therefore, BXCXD. Note that training time refers to the time it takes a user to reach the same level of productivity experienced on the original system -- not the length of a training course.
Now let's plug some real numbers into this equation. The sample numbers used below are typical, but of course substitute your own estimates for an actual calculation.
A quick note about these numbers. Autodesk commissioned an online survey of its Revit users in December 2003. Approximately 100 users responded to the survey. I will use those results, compiled in the white paper, "Return on Investment with Autodesk Revit," as the basis for the sample numbers below (figure 3). The white paper also includes an Excel-based ROI calculator for BIM that you can use for your own ROI calculations.
Figure 4. A sample ROI calculation.
Using these numbers, ROI is slightly more than 60%! That's a healthy ROI for most IT investments. But every company must decide what's an acceptable return on their investment. Small companies might need to demonstrate how they plan to repay a bank loan. Larger companies may use ROI to compare proposed uses of their working capital.
If you play around with the numbers, you'll notice that the productivity gain and loss are the most sensitive variables in the equation. Slight changes in those figures produce the most dramatic changes in ROI. You can understand why productivity is so critical: It's the long-term result of an IT investment.
The productivity gain figure used in our sample calculation (25%) is indicative of results reported to Autodesk and a conservative estimate. One Revit customer, Rhode Island-based Donald Powers Architects, recently measured the productivity gains the firm experienced using Revit for numerous design projects (figures 4 and 5). Principal Donald Powers reports, "With about 20 projects completed in Revit, the firm has seen productivity gains of 30% in design and documentation, and a 50% drop in requests for information during construction." In addition, training time -- the time it took the staff to become as productive on the new system as the old -- was just 14 days vs. the three months used in our sample formula.
Figure 5. Donald Powers Architects completed approximately 20 design projects using Autodesk Revit, including this innercity rehabilitation project.
Figure 6. Donald Powers Architects found that using Revit has resulted in a 30% productivity gain -- a key variable used for ROI calculations -- for projects including this high-end residential development.
In Autodesk's recent online survey, more than half the respondents experienced productivity gains of more than 50% using the Revit building information modeling solution, and 17% experienced productivity gains of more than 100%.
The least important factor in our ROI calculation turns out to be the system cost, an interesting fact to remember the next time you're involved in a technology purchase. Doubling the system cost in the original set of numbers (from $6,000 to $12,000) reduces the ROI by only 20% (from 61% to 41%).
ROI is a popular metric, for sure. It boils down a complex soup of numbers into a single percentage everyone can digest. But beware: The ROI metric is more accurate for cost-saving projects than for revenue-generating projects. ROI analysis works best for IT implementations that produce tangible, easy-to-measure cost benefits, such as improved productivity.
When calculating ROI in terms of revenue generation, analysts often use estimates -- lessening the accuracy of the results. A more extensive ROI on the adoption of BIM could include profit gains from increased billing, project quality, and increased repeat business; improved communication and client presentations; links to external analysis applications; and so on. The difficulty is in projecting the value of those gains.
For example, one respondent to the Revit survey stated that adopting BIM had shifted the time split between traditional design and documentation. Using Revit decreased the hours the firm spent on producing construction documents by 10%, allowing users to spend that extra time in more constructive, up-front design work. As a result, the firm was reevaluating its fee structures. This profitability boost may be complicated to calculate, but you could certainly factor it into a more complex ROI analysis.
Likewise, another survey respondent (a 300-person architectural firm) reported that it completed several projects using Revit with half the budgeted staff and in half the budgeted time. It would be easy to factor in the reduction in budgeted time -- a direct component of productivity -- but the ramifications of the excess design staff is a bit more complicated and more difficult to quantify.
ROI: Final Thoughts
If you're asked to help determine the ROI for building information modeling, don't go into a tailspin. Adopt the viewpoint that it's a necessary evil and turn it into a useful learning experience for yourself and your organization, providing crucial insight for future projects. And once the ROI is complete and the technology is in place, don't forget to measure your organization's actual performance against the expectations.