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This article examines the development of a business case to secure coveted funding for a LIMS implementation. Information on hard cost savings and soft benefits of implementing a LIMS system, and managing the compilation of the cost justification are covered.
Pursuing a new or upgraded laboratory information management system (LIMS) results in more accurate and quicker data-driven decisions for companies. Such a major project requires significant investment and faces considerable competition with other IT initiatives for funding. Therefore, a thorough business case is required to justify the costs and demonstrate the value of the LIMS to the organization. The business case should articulate and quantify the benefits and costs of the LIMS during the lifetime of the system. Processes and practices, both within and outside the laboratory, should be reviewed in detail. There are many attributes that need to be taken into consideration such as financial fitness, technological fit, company culture, schedule and timing, business understanding and competitive quality.
Customers tend to consult LIMS vendors to acquire information regarding the overall costs of the LIMS, whereas external consultants are most commonly employed to help identify and quantify the benefits, and build the initial business case. It should be recognized that in many cases, LIMS vendors' experience of previous projects could prove particularly beneficial when it comes to identifying and measuring the LIMS benefits.
This article will provide a detailed insight into the process of developing the business case and suggest possible strategies for identifying relevant costs and benefits. The paper will highlight both quantitative and qualitative aspects required to justify a LIMS investment, and will go even further to discuss those benefits and costs that are "hidden" and frequently unnoticed, but are equally important to reinforcing the overall business case.
To define the benefits of a LIMS implementation or upgrade to the organization in the most efficient way, people from throughout the organization need to work together in a team. Furthermore, a certain amount of ingenuity can prove beneficial when attempting to review laboratory processes and practices that can be favourably impacted by a LIMS. The value in implementing or upgrading a LIMS can be categorized into hard savings, which are tangible and quantifiable, and soft benefits, which may be intangible or difficult to quantify.
Hard savings. In general, hard savings generated from sources existing both within and outside the laboratory can be identified through a close look at the cost areas of inventory, labour, operations, materials and fixed assets. In the laboratory, a thorough review of the workflow will recognize waste or opportunities for improvement in current processes. This in-depth examination should enable the quantification of hard savings in both direct costs and labour savings. Tangible and measurable benefits for the laboratory include data access improvements for customer queries, simplification and automation of invoicing, productivity improvements using bar coding for sample tracking, and automation of calculations and control of associated results. The team responsible for developing the business case needs to focus on the key possible benefits, namely process automation, instrument integration, bar coding and reporting.
Figure 1 Total cost of ownership in terms of money, time and resources.
While these benefits play a major role towards the decision to implement or upgrade a LIMS, the biggest part of the justification of a LIMS is derived from benefits outside the laboratory. It is true that significant hard cost savings and cost avoidance can be achieved through a LIMS implementation in related business areas such as manufacturing, logistics, order processing, invoicing and customer fulfilment.
To quantify the financial benefit, one should identify and model the cost savings in terms of material, labour or external costs; cost avoidance in terms of maintenance, remediation or additional recruiting; and possible additional revenue from new contracts or capabilities.
Typical examples of hard LIMS benefits to be originated outside the laboratory include the elimination of transcription in preparing Certificates of Analysis, automating inspection processes via an enterprise resource planning (ERP) interface and faster quality approval of raw materials. These external benefits involve improvements in planning and scheduling, eliminating transcription and redundant data, simplifying access to laboratory data and the integration of LIMS with other business systems.
Soft benefits. Soft LIMS benefits are particularly difficult or even impossible to quantify and measure, but they can serve as an advantageous reinforcement to hard, tangible savings. A LIMS implementation can result in significant improvements in key areas such as operating efficiency, employee morale, sales, customer satisfaction and the organization's competitive situation.
Figure 2 Simplified LIMS TCO model.
Such improvements can be identified and supported using anecdotal evidence. For example, many LIMS managers share the opinion that a LIMS implementation or upgrade enables laboratories to significantly increase sample loads without changing their staffing levels. In addition, superior access to laboratory information presents downstream improvements on efficiencies such as turnaround times, backlog and instrument loading. As far as employee morale and user satisfaction are concerned, the team responsible for developing the business case can identify enhancements through speaking to current users of the system that is being evaluated.
Identifying quality, security and compliance improvements initiated by a LIMS implementation or upgrade is achievable through anecdotal evidence, but proving cause and effect, and predicting and quantifying soft benefits can be challenging. This is because this process usually requires various "what if" scenarios, which are obviously very hypothetical.
For example, the cost and impact of a compliance failure to a pharmaceutical company could be astronomical, but predicting the risk and cause of such a failure is extremely difficult. How could one quantify "improved compliance" or other benefits similar to this one? Still, soft benefits such as improvements in quality and compliance, the financial implications of which are difficult to be quantified and measured, should not be overlooked in any business case as they can provide a convincing justification for a LIMS implementation.
Identifying and quantifying the costs when building the business case for a LIMS implementation or upgrade is typically much simpler than the benefit analysis process described above. When conducting the cost analysis, one should consider all costs including one-time and ongoing expenses. Direct financial investment involves the one-time costs for the hardware, licenses and installation as well as the project management and ongoing costs of maintenance and service charges.
Figure 3 COTS reduces risk and internal support for lower TCO.
Internal costs might also include the one-time expenses for staffing the project and the ongoing costs for IT support and systems administration. It is important to note that a project's scope and its costs are directly proportional. "Scope creep" leads to escalating costs, therefore it is strongly advisable to manage and control the scope to control the cost.
Total cost of ownership (TCO) analysis aims to quantify the total costs of owning and using software over its lifetime in terms of money, time and resources (Figure 1).
TCO for LIMS is based on a number of factors, such as the expected lifetime of the system, the number of users and sites, the complexity of implementation and solution, and the deployment technology and infrastructure. TCO for LIMS includes more than just the cost of software licenses and annual maintenance. It also includes implementation costs, associated hardware costs, ongoing internal IT support and maintenance costs, and the application-specific training and IT helpdesk costs (Figure 2).
Supporting multiple customized software solutions for similar applications can prove inconvenient, particularly when implementing a LIMS at multiple sites across the enterprise or when consolidating existing systems. Harmonizing processes and standardizing LIMS solutions according to application across the organization can yield significant operational benefits. More specifically, standardization facilitates better analytics and consistency of reporting, and easier access to data for both internal and external customers. It simplifies and enables better record keeping while also improving overall quality of the laboratory information management process.
A recent independent study demonstrated that LIMS standardization has a considerable positive impact on the total cost of ownership of LIMS.1 The study results showed an overall 40% reduction in TCO. Survey respondents achieved, on average, $115000 of benefits per laboratory per year through improvements in user productivity in addition to cost savings of more than $35000 per laboratory per year through increased IT productivity.
Apart from LIMS standardization, the level of customization and configuration required when implementing a LIMS also have a substantial impact on the TCO and should be taken under careful consideration. Experience has demonstrated that when changes are made to the base LIMS system during the implementation, customized software will cost more than equivalent commercial off-the-shelf (COTS) software to maintain and support during the lifetime of the system.
As a consequence, LIMS vendors should always help customers reduce customization while encouraging them to deploy a COTS LIMS solution. Modern COTS LIMS solutions are flexible and configurable, and require minimal customization making them quicker to implement and validate. Successful COTS LIMS have been shown to reduce customer risk and be easier to maintain and upgrade. Deploying a COTS LIMS solution is a viable strategy to help achieve the lowest total costs of ownership and the quickest return on investment (Figure 3).
Interfacing other systems can be an area where some degree of customization is inevitable. LIMS vendors often provide standard off-the-shelf interfaces to commonly integrated systems, such as those from SAP. These commercial interfaces will be quicker to implement and easier to support. Where an off-the-shelf integration solution is not available, customization may be required. In these cases, efficiencies can still be achieved by leveraging common industry standards and vendor-supported application programmable interfaces.
Having quantified the benefits and the costs of a LIMS, a credible and comprehensive "cost justification" should be prepared to serve as the basis for project acceptance by the management. This is done by balancing the investment against the return. The cost justification is of significant importance since companies no longer invest just for the sake of technology. What's more, it forces focus and prioritization.
As part of the cost justification, it is necessary to prepare the cash flow statement and investment appraisal for the project. The cash flow statement reads like a checking account register, with costs such as purchase price, vendor support and maintenance, and installation tracked against savings or cost avoidance such as labour, inventory and operational enhancements. The actual investment appraisal might detail the return on investment, calculate the payback period or include a discounted cash flow analysis, taking into account the time value of money. Work with the finance department to determine appropriate financial measures and methods to use in the business case. Companies often stipulate specific methods to use or "hurdle rates" to meet when investing in new projects.
Implementing a LIMS or upgrading an existing system requires significant investment that competes with other IT initiatives for funding. To gain approval for such a major project requires a compelling proposal that clearly identifies and quantifies the LIMS benefits and costs to the organization.
A state-of-the-art LIMS is able to improve the competence and productivity of the laboratory, advance the production cycle or product release times in a manufacturing environment, and diminish general administrative and maintenance costs. The LIMS might also allow more to be done with less through a reduction in waste and scrap, or delaying equipment replacement and staffing increases. LIMS costs are initiated from software licenses and hardware, installation, configuration and project management support and maintenance as well as from internal resources.
Standardizing LIMS solutions across the organization and choosing to deploy a LIMS solution as a COTS product have both proven to significantly lower total cost of ownership and help companies achieve a quicker return on investment. Finally, when preparing the business case for a LIMS implementation or upgrade, it is in the company's best interest to consult LIMS vendors to more efficiently assess both the benefits and the costs.
Mark Fish is senior product manager, Thermo Electron Corporation, Philadelphia, PA, USA.
1. Standardizing on LIMS http://infolinks.thermoinformatics.com/white_papers/register_download.asp IDC, 2004.