How Should End Users Measure The ROI Of Security Systems?
7 Jan 2022
Traditionally, security has been seen as a cost center rather than as a profit center or a source of revenue in an organization. Therefore, end-user security managers have struggled to cost-justify their purchases of security systems: How can you assign value to preventing a catastrophic loss unless or until such a loss happens (which you’re trying to avoid!). Even so, security’s return on investment (ROI) picture is changing, with expanded system capabilities and technologies that provide benefits beyond the traditional security function. For the latest, we asked this week’s Expert Panel Roundtable: How should end users measure the return on investment (ROI) of security systems?
While most physical security systems are not considered a revenue stream, a common measure of return on investment, it is important to review the initial investment to determine if it has provided value beyond the original intent. Security systems are increasingly used to solve problems that go beyond traditional security issues. As the number of Internet of Things (IoT) sensors expands, so does the amount of valuable collected data. When measuring ROI, organizations need to look at whether their system can transform this raw information into actionable business intelligence across a multitude of departments including facilities, HR, legal, etc., since the ability to make better informed decisions has a direct impact on an organization’s bottom line. Total cost of ownership of a security system should also be considered when measuring ROI: Training, maintenance, and upgrades on multiple systems can be expensive. A single unified platform streamlines operations and lowers costs.
For many, investing in a security system is a necessary cost, the value of which is undeniable. In terms of ROI, however, it’s difficult to measure events that didn’t happen. Beyond security and loss prevention, other uses for video are now possible thanks to technology integrations and intelligent software applications that can quickly analyze video to pull out relevant business insights. When combined with AI-powered analytics, point-of-sale (POS) transaction data, and the right software, video can deliver a wealth of intelligence about a user’s operations and customer service, promotional efforts, merchandising success, and more. This information can be used to reduce shrink, improve operations, and increase profitability. The added level of intelligence can help businesses make informed decisions about marketing, operations, and staffing to boost their bottom lines and position themselves well for future growth, which most certainly can be measured.
Calculating the ROI for any business investment is measured by how it helps the business make and/or save money. Therefore, the ROI for a safety and security system should be measured based on a minimum of 3 inputs.
1) Will it help the business make money by helping protect the brand from negative exposure and build customer loyalty with increased trust? Without the investment, if something goes wrong, how will it impact customer acquisition and retention?
2) Will it help avoid potential costs? Will it reduce the risk of something going wrong, resulting in physical and financial damages such as repair costs, regulatory fines, void warranties, legal settlements, accidents, etc.?
3) Will it help reduce operating costs by optimizing resources? Can staff’s time be used for more value-add activities; what is that worth?
Finding a solution that drives positive results in all three is a pot of gold!
When it comes to calculating the ROI of a security solution, it boils down to the total value created versus the total cost of ownership (servers, power, maintenance, etc.). The value derived from security solutions will vary from company to company, depending on their business drivers and priorities. However, direct value typically includes reduced loss from criminal activity such as theft, vandalism, or fraud, as well as the reduced cost to operators and increased staff efficiency. Then there is an indirect value that businesses can generate from security systems. Examples include the ability to analyze footfall and shopping habits, reduce insurance costs, or mitigate legal expenses from incidents that happen on premises. The next generation of smart security systems, which generate more data and have greater artificial intelligence (AI) and analytics capabilities, can help organizations dramatically increase the ROI from their security systems from these secondary value paths.
HID Global explored how end-users measure the ROI of security systems in its 2021 State of Physical Access Control Report. It highlighted the tension between planning and investing in physical security to combat evolving threats amid an unprecedented global pandemic that changed the nature of work. Two findings really stood out. First, 41 percent of respondents cited cost as the biggest obstacle to upgrading physical access control solutions. However, the damage caused by a security breach often has a far greater cost, measured in dollars, loss of brand reputation, or employee safety. Second, 20 percent of respondents said that a lack of compelling ROI was their main obstacle to upgrading their infrastructure. These figures tell us that executive leadership teams continue to struggle to see the value of upgrading their physical access control systems. The industry needs to get better at communicating the value of security.
Security rarely has a return on investment for end-users through a financial lens. From this standpoint, the system can cost thousands of dollars, but it won’t generate financial return in a traditional sense. The return comes from not only keeping problems at bay, such as mitigating lawsuits or preventing theft, but through increased operational efficiencies and customer experience. For example, camera analytics in warehouses can determine the best way of directing forklift traffic so they reach their destinations faster, increasing the number of goods that can be handled, a direct boost to productivity. Retailers can find a return on investment from security systems by using analytics to see what merchandise displays customers linger at the longest. The better customer service, the more revenue that will be generated and businesses will see their financial return.
Our Expert Panelists suggest multiple approaches to measuring the ROI of a security system, while conceding the continuing challenge. In general, taking a broader view of the impact of technology systems can enable creative end users (and their management) to identify new ways that the security industry’s technologies can benefit an organization. Translating those benefits into hard numbers is another challenge, but there is progress on that front, too.
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