Balancing Financial and Non-Financial Value in Digital Investments

Every investment in new digital technologies should always lead to measurable financial benefits, right? Yet, too often, companies adopt isolated solutions targeting short-term, local gains that may neglect essential infrastructure and limit long-term financial potential. While a financial return is critical, focusing only on immediate gains can risk undervaluing the broader impacts of digitalization investments. A balanced approach, considering both financial and non-financial impacts, helps unlock the true potential of Industry 4.0 projects.

So, how can we shift our focus from chasing short-term gains to unlocking long-term, transformational value?

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1. Avoid an isolated view on ROI, start by building a technological foundation, then harvest value

The true value comes from bundling projects to create new capabilities. Long-term technology foundation projects might not deliver immediate returns, but they are crucial for building a technological foundation that enables future value-added services. Implement a framework to prioritize digital projects by firstly focusing on long-term strategic projects that cannot be evaluated through isolated ROI calculations, and only then start harvesting value by building use cases with clear ROI that improve the existing business. It may be tempting to focus solely on quick wins, but without a solid technological infrastructure, you will achieve limited, local benefits.

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2. Consider the total cost of ownership (TCO) approach for digital projects

To calculate a business case for digital solutions, both ROI and TCO could be a suitable approach depending on the project‘s nature. Calculating the ROI might often be misleading, since the assumptions of the business case are dependent on the “optimism” of the responsible person and the focus is on visible and quantifiable investment and operational costs. For digital solutions, however, the TCO approach often leads to a more realistic business case. It accounts for the total expenses of acquiring, building, and maintaining a solution, including all lifecycle costs and hidden expenses, especially for IT support and infrastructure costs.

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3. Make vs. Buy: Don’t “reinvent the wheel” with self-built solutions

Refrain from developing and maintaining a high number of self-built solutions with potentially high hidden lifecycle costs, such as regular maintenance, bug fixes, and security updates. Furthermore, self-built solutions are highly dependent on specific staff who developed and maintained them, which poses a business risk in case of absence or leaving the company. Rather, establish strong partnerships with experts and professional vendors to procure stable solutions, outsource service and maintenance efforts, and have transparent and plannable costs.

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4. Evaluating Non-Financial Impacts: A Broader Perspective on Project Value

Evaluating digital solutions based only on financial impact can be misleading and result in wrong prioritization, focusing on quick wins, and frequently losing the big picture out of sight. For evaluation purposes, non-financial criteria should be considered as well, especially in order to ensure a consistent implementation of the strategic digital roadmap without shifting too much focus towards short-term actions. Here are a few points to keep in mind:

• Align on evaluation criteria with stakeholders: First, align on your individual non-financial evaluation criteria, such as scalability, usability for key users, fit to roadmap, user satisfaction, etc. Agreeing on these criteria with key stakeholders establishes common ground for qualitative evaluation of project progress as well as impact.
• Scalability of the solution: Is the solution you are building or acquiring scalable to other production lines or plants or is its use limited to one location? What are the associated organizational efforts and financial implications for scaling it? Good scalability is essential to achieving a larger impact across the company.
• Contribution to the digital roadmap: Is the digital project at hand consistent with the overall and agreed digitalization roadmap and does it contribute to strategic KPI (e.g., increasing on-time delivery, reducing lead times)? Prevent getting too distracted with new side topics that might come up along the way.
• Speed of implementation: Are all relevant prerequisites for the full implementation given or are there any obstacles along the way that will put the project on hold for a while or even prevent implementation? Try to remove all foreseeable obstacles to achieve full implementation without necessary escalations and avoid a collection of “85%-done” projects.

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Don't wait to realize your balanced approach - start now and harness the full potential of your digital investments!