5 Steps to Consider When Making Technology Investments (2024)

Introduction

Based on the 2018 IFAC Global SMP Survey (the Survey), 46% of 6,258 small- and medium-sized practices (SMPs) were planning to invest less than 5% of their next 12 months’ forward revenue on technology products and services, while one third plan to invest less than 1%. Technology is a game changer and a disruptive force on so many business fronts; thus, it is important for firms to make the necessary investment in technology to remain relevant to their clients.

Based on the responses to the Survey, the top technology developments planned or introduced were the development of in-house skills and expertise in IT and the adoption and use of cloud options for client’s interface and servicing:

The SMP Business Support Task Force (SBSTF) of the IFAC SMP Committee recently discussed this topic as part of its practice transformation initiatives. The Committee offered five steps for SMPs to consider when investing in technology:

1.Develop a Technology Strategy

An investment in technology, like everything else in a practice, needs to be planned. What is the firm’s business strategy within the next year? What about the next three to five years? What specific technology and the requisite investment will need to be prioritized by the firm to meet its long-term business plan? How will this impact the firm’s service delivery over time?

The technology strategy should be fully aligned to the firm’s long-term business plan. To develop a comprehensive plan, Chapter 5 of the Guide to Practice Management for Small- and Medium-Sized Practices (PM Guide) and a Gateway article on “Developing a Technology Strategy” which covers the steps to help embed technology into a practice will be of help.

Chapter 5 of the PM Guide also includes other in-depth information for firms planning to embark on a technology project, starting with a plan, the selection of technology, and covering training and contracts that come with system implementation.

2.Identify Technology Needs and Examine Firm Readiness

The firm-wide technology strategy will need to be broken down into sub-components, either by services provided (e.g. audit, tax etc.) or by some identifiable functionality (e.g. human resources, billing, and/or customer relationship management).

It is important to determine the firm’s current operational needs and future requirements, and how those align with the firm’s strategic direction. How critical is it for a firm to meet those needs, and by when? It can be helpful to draw up a list using categories such as critical, beneficial, or optional (good to have) which can then help the firm to prioritize. Conversations with other practitioners who are ahead of the technology curve can be insightful. It is imperative to gauge whether staff are also ready to embrace new ways of working with technology. If staff are not ready, then appropriate intervention will have to be applied such as in-house training and demonstrations, appointment of product champions, and other possible incentives. Buy-in from staff will be necessary for a successful technology implementation strategy.

3.Conduct a Thorough Cost Benefit Analysis and Investment Appraisal

Being aware of the technology needed to achieve the firm’s strategy is critical. The next step is to conduct a cost-benefit analysis of technology investments while being cognizant of the opportunity cost. For example, a firm may have $15,000 with the choice to either invest in a new technology system that can enhance the productivity of the staff, or leave the money in a fixed deposit that earns 5% per annum. If the increase in productivity from the former can be quantified at 10% per annum on the cost of investment, then the opportunity cost for NOT making the investment on the new technology system is a negative return of 5%. This negative return should form part of the cost-benefit analysis.

The extent of an investment appraisal will very much dependent upon the scale of investment in question. Usually, an investment should be considered only if it can produce a positive return. It is also important to identify the break-even timeframe in the implementation phase. But, on the flip side, the cost of being left behind should not be ignored too.

Various methodologies can be used to conduct an investment appraisal. Common challenges are: arriving at an acceptable rate of return, getting complete information on costs (including opportunity cost), and quantifying benefits such as efficiencies and staff satisfaction in monetary terms. In recent years, training budgets have become more common and spending on cyber security has risen, so it is more important than ever that these costs are also factored into the computation. The Institute of Chartered Accountants, Scotland (ICAS) has an article that can be useful as a reference on various appraisal techniques.

4.Explore Different Funding Strategies

Different investment alternatives should be considered at this stage: for example, a “bring your own” device strategy may reduce entry cost for the firm but may also require robust cyber security firewall/ protection and consequently, more investment in this specific area. There are also options such as outright purchase (rather than leasing or paying rent). Arrangements such as Software as a Service (SaaS) or Infrastructure as a Service (IaaS) in recent years have proved to be popular alternatives for firms. Such investments generally allow firms to break up their initial capital outlay over time.

In an SMP environment, funding can be obtained from the following sources:

• Partners and/or shareholders. This is the most directly accessible source, but possibly the most difficult to mine because not everyone shares the same enthusiasm for investment returns. Different people have different investment timeframes.
• Co-funding with other firms. This is possible if a technology type can be shared among firms. Sharing will reduce the necessary cost contribution by any single firm. However, there may be copyright issues and scheduling conflicts during peak work cycles.
• Commercial loans from banks and other financial institutions. These usually involve collateral and personal guarantees from partners/ shareholders. They can take a long time to obtain. Interest rates can also be prohibitive in certain jurisdictions.
• Credit from suppliers or technology suppliers. This routinely means that the credit provider will have the final say on the type of technology to be selected. As a result, the firm might have limited options.
• Assistance from government agencies. In many developing countries, governments have set up agencies to help small- and medium-sized entities (SMEs) and/or SMPs. Some provide loans at highly-subsidized rates while others award grants to targeted groups. For example, the Malaysian Government had set up an SME Corporation, among other institutions, that can help SMPs to modernize their practices, provided that their services can be exported to other countries. With the proliferation of cloud technology, this capability is no longer rare.

While it is crucial to plan the monetary outlay in all funding options, the timing of cash outflows and how they will be met by these funding options will also need to be examined concurrently as part of the investment appraisal.

5.Determine the Implementation Timetable and Monitoring

Once an implementation timetable is drawn up and a budget finalized, it is time to put the plan into action. Appointing a product champion is a good way to get staff buy-in. It is vital for the firm to ensure that the project is executed on a manageable scale with clear milestones, and that it can be built upon when moving upward to bigger-scale projects. This allows for easier project management and better risk management. For bigger technological implementation project, SMPs must be open to seek professional help from experts.

It is also essential to monitor the implementation against a set timetable. This helps in managing budgets and cashflows. Actions may be required should issues occur during the implementation phase. Partners and/ or proprietors’ support is paramount for a technology project to be successful.

Conclusion

Successful implementation of any technology investment will be highly dependent on SMPs getting the right support along the implementation journey. One of the more important skill sets that SMPs will need to cultivate internally in the next few years is in the area of change management as all these disruptions become more of a reality. With buy-in from staff and support from senior management, the journey of the SMPs will be much more certain and manageable.

Without a doubt, SMPs will need to embrace all these rapid advances in technology if they want to stay relevant in the industry and provide the best services to their clients. This will includes staying up-to-date with technological trends, optimizing and adapting whatever current technologies are available within the firm to better meet the needs of clients, and being open to technologies as they come along. Recognizing these steps as part of the firm’s technology investment and implementation cycle will be necessary going forward.