I think that the biggest problem with calculating ROI is trying to determine how many incidents a system prevented just by being there. That is something I have wrestled with ever since I've been in the business. This is especially true in the casino vertical.
Take the case of employee theft. You can generalize that if there were no cameras or if they were ineffective and some employees got away with stealing, that behavior would likely increase as employees became emboldened by their or others' actions. In that vein, if dishonest employees are caught and fired, or better yet prosecuted, that would have a deterrent effect on others who might be considering such actions.
But how do you quantify that?
Deterrence is clearly tough to measure in any security system, by definition, because you must estimate how many things did not occur.
However, there are two ways it can be done fairly reasonably:
- Going from no system to a system, one can presume that overall decreases in incidents are impacted by the system though, of course, this is uncommon today as most already have systems and other simultaneous factors (like economic changes or increases in guards) could factor
- Upgrading a system, which is most typical today.
Let's see you measure a baseline of incidents occurring, incidents solved, operational expenses, etc. Then you upgrade cameras from SD to 5MP. You could then measure how those parameters changed afterward, assign a dollar value to them and compare to the upgrade cost. What do you think about that?
Of course, you have to factor in things like, HOW the client sees the system helping them. The most common assumption is that surveillance will be used to prosecute or hopefully prevent crimes like thefts, assaults, vandalism, etc. In my experience with restaurant clients in particular, systems are often just as useful for "ass-covering" - for example, customer slips on some stairs, claims the stairs were wet or had had something spilled on them... video is retrieved indicating the customer tripped over his own shoelaces... and the client avoids a million-dollar insurance claim or lawsuit.
I think it would hard to quantify that as a "million-dollar savings" as the burden of proof is on the complainant and it may have been tossed out of court even without the video evidence. I suppose one could calculate what was potentially saved in lawyer's fees for the defense.
In cases like these though, deterrence isn't the intent of the system, nor is "recovery" per se.
Matt, you can use the count and cost of historical incidents (e.g. slip and fall) compared to what occurred after the system was deployed.
Also, for restaurants who use the system as a remote management tool, you can factor in the value of time savings for managers not to have to physically visit the site, etc.
Possible, but at least in our case, I think the improvements offered by HD/MP cameras will be much more subtle and harder to quantify, except for certain limited applications. For instance, our current hybrid system provides excellent "live" picture quality via our analog matrix but reduced resolution and increased noise through the encoders/NVRs. We've designed our camera layouts with analog in mind and deployed our cameras to provide sufficient clarity (love that term) to provide suitable evidence.
The one place we know will benefit from HD is table games, where our existing analog cameras allow us to identify the suits of cards "live" through our matrix but the 4SIF/D1 limitation of encoders prevents after-the-fact card suit identification. Since a replacement system will certainly eliminate the analog matrix to simplify monitor wall design, we would also lose the ability to identify card suits during "live" viewing.
The same may be true of other applications but my feeling is that we would be deploying the majority of HD/IP cameras for the same reason: the conversion to all-digital monitoring will reduce our ability to see what we were able to see on our current system; at least when viewing cameras "live".
I don't forsee that many cases where HD will be enough of an improvement over our analog system to allow us to see things we can't currently see unless we use the overused "one MP camera can replace x number of analog cameras" scenario. That factor interferes with our ability to determine the ROI of the upgrade.
Carl, I think you misunderstood me. My point wasn't that HD will deliver ROI than SD but that you should be able to measure it by comparing the upgrade cost to the number of incidents that you were able to solve with the HD cameras that you would not have with SD, etc.
In other words, I am talking about the ROI measurement process. Maybe for you it's negative, but there should be a reasonable process to estimate the ROI of an upgrade - positive or negative.
FLIR Security | 06/16/13 05:14pm
Personally, I think there are far too many variables that come into play to accurately (or scientifically) judge any 'results'. Including, but not limited to, the skew of the tester, the many assumptions that have to be made without a 'base line' point of reference [beyond the measure before, measure after analysis] for all of the other variables, the 'other uses' ROI probabilities, etc.
It's a statistical challenge that can, at most, be 'guestimated'.
A marketers dream.
Dear Mr. Pessimistic, there's value in, at least, trying to better understand and diagnose the success of a system, even if it's not perfect.
FLIR Security | 06/16/13 05:20pm
A point I completely agree with. :)
I'm merely trying to answer the posted question (Actual ROI).
If nobody has come up with an actual equation that can be used to determine actual ROI by now, I think that alone says enough....
ROI projections are more art then science. Neither good nor bad, as long as you accept that thesis and don't take it literally (imho). :)
P.S. I posted using IE just for you... ; ]
If the existing system is sufficient and the upgrade provides no additional value (i.e., cases solved, time saved, etc.), than you can conduct the ROI. Investment = X, Return = 0, etc.
In this scenario, the ROI is not undefined, it's simply zero.
That would be true if the only criteria used is cases solved but there are a number of other criteria that can be added to the equation: system usability, added functions and features, warranties, and in our case, footprint, power and cooling cost savings over the long term.
Ok, than add them in. If an upgrade reduces power and cooling costs, than add them in as operational savings. If the new functions and features reduce time spent by operators, estimate how much time is saved over X number of years and add it in.
The return is simply all the savings the security system delivers - whether it's reduced theft/loss/incidents or lower operational costs or time saved, etc. Sum them up and compare to the cost of the ugprade.
That's exactly what we did, along with the consideration that most of our hardware is reaching end-of-life and would have to be replaced anyway.
Great, then you should be able to estimate ROI reasonably, one way or the other.
Ok, but those are evaluation points which were not mentioned in the original post.
"either of which MAY be for anything from $1 to millions of dollars."
Yes, but that's like saying a person may die at 11 or 110 years old. You don't need to simply give up. There are historical patterns to work with that allow a business person to make reasonable estimates of average loss / gain, etc.
"I suppose the store owner would consider this a benefit, as he's getting the manager's time for free"
Certainly a tangible benefit for the owner / buyer here, one that you could estimate in additional time worked or incidents solved, etc. But look at it the other way, having that system may have enabled him to go on vacation without feeling scared or concerned that he would be totally out of the loop. Either way on the manager portion, this provides value to the buyer/owner in increased work / productivity, which can be estimated in an ROI calculation.
We have one datapoint that provides an interesting before/after dataset.
One November, we purchased a nice little shop we had enjoyed frequenting for many years. It seemed a well functioning ongoing business that had suddenly come on the market. It seems it had changed hands and then spent the next three years going bankrupt. We kept all elements in place including employees, space, etc.
The security installer was unable to support a video monitoring installation until late January or early February.
I just reviewed records for a quick comparison of revenue before and after video installation.
We had no video in December (historically by far our best month of the year), but we had video installed well before March (one of the worst months of the year).
The first year, we made the same revenue in December and in March. There was no VMS in December and there was a VMS in March.
In all subsequent years, we consistently made 2 1/2 times the income in December as we did in March.
While those results are subject to interpretation, in our estimation, while other sources provided various evidence of employee dishonesty, the video largely curbed it.
In retail, though, the accepted technique in measuring loss / ROI is shrinkage. That looks specifically at what was lost between products received and products sold (i.e., things that were stolen, disappeared, etc.).
Looking at total income tends to be too broad because there are so many other factors that drive that. Maybe you are just an excellent sales person or business manager :)