Paying for a Document Management System

Although everyone "gets" the intrinsic value of a document management system, when you need to justify the purchase to your manager, your purchasing department, or even your senior management or board of directors, trying to justify the expense will often be your hurdle.

The intrinsic value is obvious:

• Reduced labor to find documents
• Reduced liability through secure documents
• Reduced risk through not losing documents

Filing: A Hard Cost Savings

Often overlooked is the fact that your paper files cost you money beyond the cost of paying someone to file them.  These paper files fill your hallways, your file rooms, and your offices.  In short, you are paying for more office space than you need, and paying to keep it air conditioned and heated.  You also pay to keep it lit, and for your janitorial service to clean it.

Case in point, we had a prospective customer that was planning a move from one facility to another.  We're located in the Washington DC area where Class A office space costs you a pretty penny, our winter's are cold, and our summer's hot.  We did an analysis of the amount of file space taken by their paper files: so many lateral files, so many three and four-drawer filing cabinets, etc.  They had a lot of paper.  The net was that eliminating all their paper files and putting in a document management system would pay for itself, including all the labor necessary to scan and index the documents, in between one and two years (depending on the scenario), using the conservative estimates for the amount of time to bring it into the document management system.

The net result was that the customer bought the system, paid for the system from reduced facility charges, and had the benefit of having a secure document management system and improved efficiencies of electronic workflow.  They got both their hard and soft dollar cost savings.

Soft Dollar Costs

In case you've missed the many articles and studies, here are some of the soft dollar justifications why you should move to a document management system.  Like most soft dollar arguments, they are based on assumptions which may or may not be valid for your particular business.  

Misfiled Documents

A quick web search will demonstrate that the estimated cost to locate a misfiled document is $120 for each document, and 3% of documents are misfiled.  Assuming those numbers, that means that the average document's filing cost in a traditional paper system is $3.60 just from being misfiled, not inclusive of any labor to file and retrieve documents normally.  And that assumes that it doesn't ever get misfiled again!

A document management system's incremental cost to file a 10 page business document is on the order of ten thousandth of a cent for storage, and about a dollar to index¹.  So arguably, a document management system pays you over $2 for every document that you store, even before you look at all your other cost savings and benefits.  This presumes that every document that you file will need to be found, which is true for some applications, and not true for others.

Lost Documents

AIIM (the Associate for Image and Information Management), which is the industry organization for document and content management, estimates that recreating a lost document takes 25 man-hours², other studies say the cost to recreate a lost document is $250.  Either way, a few lost documents can quickly help to pay for your document management system.  

Some estimates say that 7.5% of all documents created by a business are lost.  So for every document you produce as a business, if it costs $250 to reproduce, then at a loss rate of 7.5%, every document statistically costs you almost $19 based on the chance you will need to recreate it.  Now practically, you won't reproduce every lost document, and a document management system doesn't guarantee that every document you create will be stored, but you can see that even if you can eliminate 95% of lost documents, the document management system is cheaper than your paper file on an incremental basis.

Not to mention, finding the right lost document - for example, the exculpatory document for litigation purposes - is as they say "priceless".

Filing Costs

Numerous sources estimate $20 to $30 per document to file in a paper system.  On the surface, this seems high to me but it probably takes into account things like the physical facility costs that I've already written about, and also possibly that the document will be filed and refiled many times during its lifetime.   Practically, it does take time to create file folders, labels, and determine whether an existing overarching folder exists for the entity (customer, etc.) including transporting the document to the appropriate file cabinet or drawer and locating its correct location.  Even for a document that is filed once, it's hard not to believe that the paper filing system takes significantly more than the one to two minutes it takes to file the document electronically.

Remembering that the electronic file has:

• A much better index and more ways to locate it (i.e. multiple keys, by date, etc.)
• No chance that the file is checked out upon retrieval, or lost in a stack on someone's desk
• No cost to refile the document once a user is through with it

Once again, a document management system should save you money.

Finally, what's going to happen to your business should your building burn down or get flooded?  Are your documents in a fire-proof safe or room?  Do you have another copy off-site?  Statistically, many smaller businesses never survive such a catastrophe, and larger business will incur millions of dollars of additional and avoidable expenses.

Case in point, one of our customers is an airline, a very highly regulated industry.  Almost 20 years ago, they had a sprinkler system leak in their main records room.  Although the leak was caught in time, they realized that their entire fleet of aircraft would be grounded if the records had been destroyed.  This was the impetus to purchase a document management system.  Today, they continue to use our system and maintain off-site electronic backups of their data, insuring against disaster.

_{1. Assuming $25/hour loaded cost for clerical help to scan and index, and two minutes to scan and index a 10 page document, it actually comes to about $0.83 per document.  Service bureaus typically charge $0.03-$0.05 per page to scan and $0.10 to $0.25 per document to index.}

_{2. AIIM Blog: http://www.aiim.org/community/blogs/expert/what-is-the-cost-of-a-lost-document}

_{3.  http://www.insidecounsel.com/2011/10/17/saving-paper-records-may-be-more-expensive-than-yo}

_{4.  Assuming 2000 pages per box and 10 pages per document.}