In search of security ROI

March 2016 Residential Estate (Industry)

There has been much discussion in the industry, over the years, regarding the large amounts of money spent on security and how you measure the return. Put in financial terms, what is the return on investment, or ROI.

Rob Anderson.
Rob Anderson.

We see the major security service providers submitting ‘quotations’ that are now called ‘your investment’. It seems that they see it as an investment.

We all buy motor cars and fancy goods, which clearly have only enjoyment value and no ROI. However, the cost of reducing crime risk is still seen as a grudge purchase or an investment where there’s no ROI.

For the purpose of this discussion, let’s ignore the fact that the security investment may have saved a life, injury or loss of assets. Maybe that’s an ‘emotional return on investment’: difficult to measure and not easy to relate to, until it knocks on your door. When it does, unfortunately the investment is based on an emotional response. At present, in South Africa, and it seems increasingly throughout the world, we have no choice. Crime is really bad or on the increase. The investment is necessary, so let’s see if there is any ROI.

The areas that need to be considered, are twofold:

1. The expenditure on technology which reduces manpower costs.

2. The positive effect that good security has on property prices.

Measure your ROI

Both of these situations can be measured so there is more understanding of the return on investment.

Technology replacing manpower is well known. With clever planning and careful design there are many opportunities in this area. It is however worth mentioning, that too often the cost and provision of the manpower solution is so minimal that there can be no saving. You first need to have a security plan or solution that is appropriate for the risk. Then look at the investment and get the best return, or ‘bang for the buck’ as it is sometimes referred to.

As an example, if you have a small estate with one guard patrolling the fence line, you can spend R1 000 000 on technology for the same cost per month without yearly increases. Monitoring the fence line using CCTV is far more efficient and over each year there is a cost-saving compared with guarding costs.

We have also seen guards replaced with technology at entrances and exits. At busy points both are necessary, but an unmanned access controlled point could be used where traffic volume is very low and the risk is minimal. The saving here is substantial.

The most important factor in getting some return on investment is by using both technology and manpower effectively. However, listed below are a few pointers that must not be forgotten. You must always invest in quality, so:

• Make sure the guarding solution uses trained guards with good management and clear job descriptions.

• Use electronic equipment that is good quality, has guarantees that are longer than one year and have backup that is available in your area.

Without this approach it would be a bad investment.

Careful planning is the first step

So how do you proceed with the security solution to get the maximum investment value and return? An assessment of the particular situation must be carefully done to look for opportunities to provide optimum use of both manpower and technology to save money and improve security or at least retain the minimum acceptable level.

Having done this, the following steps would be:

a. Design the system using robust equipment that reduces the need for replacement in the short term. The longer it lasts, the better the return.

b. Use equipment which has a three- or five-year guarantee.

c. The system must be fully functional at all times. This requires vigilance and a carefully planned maintenance programme. Saving money on a system that is not functioning is not an option.

Let’s move on to the effect of security on property prices. We have all been in a group discussion where people advise not to buy in that suburb or estate ‘because of the security problem’.

It has been proven on a large estate that implemented a significant security upgrade, that re-sale prices of homes increased substantially. This was after word spread in the marketplace that the security was top-class and positive outcomes had been achieved.

With this in mind, it has to be accepted that when your estate is perceived by the marketplace to have ineffective security, the houses will lose value.

Protecting a loss

Typically, a resident who pays R1000 per month for security in the levy is protecting a loss in house value. Let’s assume the potential loss is R200 000. My calculator says that a R1000 per month over 10 years, with a R200 000 return is about a 10% ROI. This obviously grows over time and is just an indication for the purpose of this discussion. The real financial chaps will do this better than I can.

If your house is worth R20 million and the security is not the best possible, the potential loss of 5% (R1 million) is very real. A security levy payment of R2000 per month for security is therefore minimal and will give a good ROI. And with all this you are getting a good level of security.

So, to achieve all this, you need a proactive security management team, that keeps everything working at optimum performance.

Always buy quality security, just like you would on any investment. And then an ongoing system of ensuring that the market perception is right. As always, there will be events that are not good. It’s how you handle the event and ensure that it does not happen again.

So, while you are relaxing in front of your TV, consider: are you paying the correct amount for security, and have you got a ROI, both financial and emotional. You should have.

For more information contact Rob Anderson, rob@robanderson.co.za, www.robanderson.co.za


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