How to calculate the ROI of a Translation Management System

This article was originally posted on the Wordbee blog. Wordbee are the makers of the translation management system and CAT tool for translators.

When we talk about return on investment (ROI) in translation, it is worth remembering that this concept involves all the resources used for a specific project or activity, including human resources. A key technological resource is the translation management system (TMS).

Unlike the ROI of localization or terminology (which are processes and, as such, intangible), the ROI of a TMS (being a technology and, therefore, somehow tangible) is comparatively easier to compute. The hardest part consists in identifying every component and the relative (human) resources.

In this article, we want to try and list the essential components to calculate the ROI of a TMS and to help you decide which technological step(s) to take. So, get pen and paper and let’s get started.

1. Total cost of ownership

The most important element is the TCO, which stands for total cost of ownership. This is a method developed by Gartner and used to compute a financial estimate in order to help buyers and owners determine the direct and indirect costs of a system. For the TCO it is necessary to calculate all lifecycle costs of IT equipment, from purchase to installation, from training to management, from maintenance to disposal.

When there is no purchase price but a periodic fee or subscription, the cost in question will be absorbed into the TCO for the expected duration of lease.

2. Operating expenses

The same consideration as above must be taken into account for OpEx, i.e. operating expenses, the cost necessary to manage a product, a business or a system, otherwise called O&M (Operation and Maintenance) costs.

If the TMS is purchased and installed on the company’s server(s), the client will bear the associated operating expenses.

Many companies, though, choose a TMS functioning in SaaS mode. The platform is then available in the cloud: in this case, the operating expenses will be marginal for the client while the technology supplier will take care of development, implementation, deployment, upgrade and maintenance. In some cases, the vendor will also provide a Service Level Agreement (SLA) to sign. In addition to cost-effectiveness, other clear advantages of a SaaS solution are flexibility and scalability.

3. Human resources

Last but not least, the human component, i.e. the staff needed to operate the TMS: IT personnel, localization engineers and project managers.

If the TMS is stored on the company’s server(s), specialized IT personnel will be responsible for the platform’s management and maintenance. When a cloud based TMS is used in SaaS mode, on the other hand, most of the management activities can be simply carried out by most staff, maybe with advanced IT skills. The maintenance, upgrade and security will be the responsibility of the vendor.

The cost relative to the localization staff should be considered as setup/configuration costs, i.e. costs for all functional activities.

Calculating the ROI of a TMS

To calculate the return of investment of a translation management system, let’s consider the ROI formula:

ROI = (Operating Result/Capital Invested) x 100

The sum of all the above-mentioned costs represent the denominator (capital invested), because they represent the total invested capital.

But what amounts do we put on the numerator (operating result), you might ask? The expected operating results. The expected operating results are the benefits offered by a TMS, i.e. efficiency savings. Think, for example, of the reduced number of hours necessary to localization staff to manage a project, and, in general, all the workflow management, control and monitoring activities. Think of the savings (in some cases up to 60%) in terms of reusing and repurposing previous translations with the help of translation memories. Also, think of the consistent quality you can achieve for your localization project by regularly managing and updating your terminology databases.

The higher the automation, the greater the savings. For a clear overview, you have, of course, to hold a firm grasp of your company and its running costs.

Here are some of the activities that can be automated:

  • Automated workflows (including word counting, quote generation, project creation, job assignment to one translator or to a team of translators, and more)
  • Maintenance and leverage of translation memories
  • Optimized QA checks
  • Reports and KPI tracking
  • Invoicing (automatically create, send and track all invoices)

By freeing up time, localization project managers can focus on new projects while the management can predict an increase in revenue. Of course, “prediction” is key here, because all the figures in the calculation of the ROI are, after all, predictions. In the end, the ROI of a TMS will have to be compared with the actual operational results. The higher the operating result, the higher will be the ROI, as well as the lower the capital invested, the higher the ROI.

The secret to maximizing the ROI of a TMS resides, therefore, in the ability to strike the right balance between the activities where a company can maximize automation (and, consequently, the savings that can be achieved) and the costs of purchasing and operating the system.


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