Calculating the ROI on Electronic Quality Management Systems

ROI of Quality Systems

For most small and mid-size pharma companies, risk reduction is the overarching reason for investing in automated quality management and training management systems. That makes sense because quality and training management systems help ensure adherence to regulatory requirements, and any failure to comply with those standards may result in product delays, fines, and reputation risks.

But when it comes to getting the entire company – especially the CFO – on board with the decision to automate quality and training processes, a direct argument focused on payback (return on investment) is helpful. That’s the focus of this article: identifying – and calculating – the ROI on investments in quality and training systems.

Start with the Costs

Any ROI calculation must start with the cost side: the investment required to obtain and implement the system. To get to that number, add the annual software cost, additional support and maintenance costs, and other direct costs. Collect these costs by year for five years.

Most software today is based on SaaS pricing and includes maintenance and support, so you pay for it annually. In that case, enter the subscription cost for each year. But if you have a traditional licensing arrangement, include the initial license cost in year one and the support and maintenance cost for each year.

Next, include other direct costs, such as implementation, onboarding, or training costs in year one. And then, to be complete, include a calculation of the time spent by your team in meetings and other project-related activities, including training on the system.

When you are done, you should have a table with cost categories listed in a header row, five years in five-column headers, and individual cells containing each item. And, of course, the total cost for each year and the five years total.

ROI Table for QMS

Calculation 1: Savings from Document-based Process

The first and easiest category of cost savings relates to document processing. Without an automated system, process documents, batch records, training records, and myriad other documents are created individually, manually routed for approval, approved, and then filed. Once filed, they are accessed and printed. If revisions are needed, the process starts all over again. The costs of these processes are much higher than you might expect. For example, Price Waterhouse Cooper estimated the cost for filing a paper document at $20 just in labor per item when you consider the steps for reviewing, categorizing, and storing the item. And that omits the physical storage required. Electronic documents cost less, of course, but one estimate of the cost per document is $4.82 each.

Determining the reduction in document handling costs can be challenging; starting with a list of document types and the number of each type makes it easier. For instance, you may have 100 SOPs for manufacturing and 250 training records, one for each employee.

Once you have those counts, you can calculate the savings by automating document-related processes. Typical estimates of time savings are 40%, but you can choose any savings between 20% and 50% and find credible sources to support your estimate. So, if you use the $4.82 cost per document noted above and multiply it by the number of quality and training documents you manage and store, you can use that percentage to calculate your savings.

Calculation 2: Savings from Training Activities and Tracking

Most pharma companies have training processes that involve circulating printed SOPs, distributing training materials, having workers attest to completing the training, and then manually updating each employee’s training record.

The cost of these training processes is high. One estimate is that a typical pharma organization spends an average of an hour per month per employee. Using that estimate, a company with 100 employees spends 100 hours monthly on these tracking and management tasks (not the actual training).

With a training management system, you can have SOPs and training materials digitally delivered to all relevant employees, and they, in turn, can access the document digitally, read, and sign off on the item. The system would then update the employee’s personnel record and mark the document as effective once they complete training. The system can present the status of all completed, required, and overdue training in a dashboard that is always up to date for monitoring.

Calculating the savings from an automated system involves estimating the time savings by having the administration of SOP management and training automated and multiplying it by the cost per hour of the employees involved. A reasonable estimate is a 30% savings, though 50% can be justified based on public reports and analysis you can find on the web.

Calculation 3: Savings from Core Quality Processes

Quality teams spend much of their time – sometimes the majority – on manual, daily administrative tasks to monitor and report on quality activities and results. Supplier management, tracing deviations and CAPAs, and management of SOPs all take time from quality team members.

An automated QMS streamlines and optimizes quality processes, connecting tasks into clearly defined workflows. It provides up-to-date monitoring, reminders and dashboards, task assignments, electronic record approvals, and automatic summaries and reports.

One way to calculate the savings from implementing an electronic QMS is to calculate the total hours worked by the quality team and the cost of those hours and multiply that by 25%.

Calculation 4: Savings from Reduced Audit Preparation Time

At many pharma companies, an impending audit means assembling a team and carefully reviewing records for accuracy and completeness. That process may take weeks with a team of one to three people and involve employee assistance across the organization. The cost can be measured in hours spent by the assigned team and the partial activity of many others.

With an electronic QMS, the company is in, or close to, an audit-ready posture at all times. The system is always up to date with the latest activities and records and ready to provide a summary, report, or dashboard on the status of every quality process.

Of course, gaps may still need to be addressed before the audit, such as chasing down an overdue item or an employee who still needs to complete training. However, the overall savings are dramatic in this area, typically 50% or more. Calculating that number requires taking the typical audit preparation time in hours, multiplying it by a cost factor, and then applying the savings expected with the quality management system in place.

Calculation 5: Savings from Accelerated Batch Processes

Batch records are at the heart of most pharma manufacturing systems. Complete documentation and tracking of each batch are critical elements of managing quality. However, managing batch records takes time and can slow the progress of batches through the manufacturing process.

An Electronic Batch Record System (EBR) results in faster batch releases by leveraging real-time data access, automation, validation checks, electronic approvals, and streamlined communication. More specifically, EBR systems automate workflow processes, reducing manual intervention and accelerating the movement of batches through different production stages. This automation minimizes bottlenecks and keeps the production cycle efficient.

An EBR also automates validation checks to help identify errors or discrepancies early in the production process. By catching issues promptly, the need for time-consuming corrections and rework is minimized, expediting the overall batch release timeline. In addition, electronic signatures and approvals eliminate the delays associated with physical signatures and paperwork routing, accelerating the approval process and contributing to faster batch release times.

Taken together, these effects accelerate the progress of batches through the manufacturing process. Estimating the amount of time and money saved is challenging but worthwhile. One approach is to take the manufacturing costs for each batch (excluding materials), which can be determined by calculating the average batch process time in hours and the cost of all manufacturing activities (staff and facilities) per hour. Then, an estimated savings can be applied, for example, a five or ten percent improvement in cycle times.

This approach will yield a cost savings amount but will omit the additional time on the market for the actual product, which is a real benefit but a little more complex to present in an ROI analysis.

Rolling Up the ROI Calculation

In the prior sections, we identified five distinct areas of cost savings or reductions from implementing electronic quality management systems. Calculating the ROI from there is straightforward.

Earlier, we calculated the total cost per year for a system each year and over five years. Now, we have the cost savings for each year (by adding up the cost savings in each of the five areas) and the total savings over the five years.

The last step is to take the difference between the two (the cost savings minus the investment) to calculate the percentage return. For example, if the investment required over the five years is $100,000 and the savings over the five years is $300,000, the ROI would be 200% ($300,000-$1000,000/$100,000). The same calculation can be done for one year or over three years.

A more complex ROI analysis can certainly be done, and monetary values can be created to represent the costs avoided by reducing compliance risk, employee turnover, and other secondary benefits. While those are real benefits, those types of calculations become more esoteric and complex to quantify. In contrast, the basic components and calculations in the five-component model above should stand up to the scrutiny of even the most demanding CFO.

Conclusion

The reason for implementing electronic systems to manage quality processes, training, and batch records goes well beyond a direct financial payback. Ultimately, these systems are essential to an overall quality system and directly address regulatory requirements. But in every procurement, someone will (and should) ask questions about the cost and the payback.

Investing in electronic quality management, training, and batch records systems should be easy to justify on a purely financial payback model. And that will clear the way for you to proceed with your plans for automating your quality systems.

If you need help working through the ROI to show your management team the benefits of going digital, let us know.