How Do You Calculate Your Return on Security Investment?

Posted by Eric Nauta on March 13, 2020

Measuring the return on investment of a product is easy. You add up the expenses related to creating and managing it. Then you take the number of sales and subtract all related expenses.

Unfortunately, it's not so simple to figure out what kind of return you get on your security investment. It doesn't bring in sales, but you know you need it. How do you calculate the savings on things that aren't stolen or damaged because security prevented it? Security can also help cut your liability risk. How do you calculate the cost of a lawsuit you avoided because of security?

The Costs of Not Having Security

With security in place, it'll be harder for an accuser to prove a company provided inadequate security. That means the company dodges litigation and its associated costs. Besides, it's hard to link security to a company's ability to avoid a lawsuit. Of course, you can't put a price on human lives saved. Nonetheless, no business has a bottomless budget when it comes to security.

Determining the return on security investment (ROSI) will be harder to do if your business has not had a major incident. In construction, an example would be the theft of a $50,000 excavator. In automotive, this could be a theft of a $35,000 new vehicle.

An office building hit by vandalism would calculate the cost of repairs. What it can't calculate is the cost of employee and visitor peace of mind. When they learn the building has been vandalized, it can affect their health as they worry about their safety. Customers and visitors may stay away.

If someone is a victim of an assault in a parking lot, the costs to consider are the medical bills, the number of hours or days of missed work, lost wages, pain and suffering, and other associated costs. A resident in an apartment building is robbed. Not only does the cost include the value of what the thief stole but also the cost of potentially losing tenants and their rent.

Organized crime hits a retailer and gets away with $30,000 in products. This can hurt future sales as customers learn about the crime and shop elsewhere.

Learning from Las Vegas

To understand the effects of an incident on security, it may help to look at the 2017 Las Vegas shooting. The perpetrator was in a suite on the 32nd floor of a hotel. He fired more than 1,000 rounds of ammunition at concertgoers attending the Route 91 Harvest music festival. He killed 58 and wounded over 400 people.

Security Magazine says the hospitality industry in Las Vegas responded in different ways. Immediately after the attack, some resorts hired off-duty police and search dogs while setting up armed response teams. Most waited and watched for best practices before taking steps to strengthen their security. A hotel installed metal detectors in the elevators two years after the attack.

The article goes on to explain that determining what security investment to make depends on whether management wants to act right away, wait and see, or take their time. For most businesses, the need to bolster security isn't driven by any one event.

It's based on their responsibility to keep their employees, customer, and visitors safe. With too many active shooting incidents occurring in various settings, no one can afford to wait.

Determining the Security Investment

Many variables affect a company's security investment. The first one is industry. Every industry has different security requirements and best practices. The ideal security solution for construction is not going to be the same as for a retailer. Though they both have buildings with multiple occupants, an office building and apartment will still have different security needs.

Every industry has its own crime statistics. For instance, one of the most often quoted statistics in construction is that construction site theft costs an average of $400 million per year according to the National Equipment Register. The average value of one stolen item is almost $30,000.

That's not all. Copper theft occurs on construction sites. The Department of Energy report shows copper theft costs an average of $1 billion (yes, billion) per year. The report refers to a case in which defendants stole copper from 24 power substations. They had to pay more than $242,000 in restitution. That comes out to an average of $10,000 per substation.

You can search for stories of construction theft to find out how much the company lost. In Hawaii, thieves got away with more than $100,000 worth of construction equipment. The price is higher than the value of the stolen goods. With that kind of theft, how much did it delay the project? That costs money.

One thing you can't put a number on is customer dissatisfaction. A delayed project affects customer satisfaction. Unhappy clients will tell others about their experience. That affects business reviews and future jobs.

Sometimes the company does not report the theft to insurance to avoid increased insurance premiums. Thus, they have to replace the equipment with money out of their pocket.

You also want to look at other threats the company faces besides crime. Construction not only deals with theft but also injuries. National Safety Council reports the average work-related injury costs $39,000.

These numbers can give you an idea of how much loss is possible without the right security services. Based on these numbers, a construction company may start with a cost of at least $69,000 per year: $30,000 for stolen equipment and $39,000 for injuries. This is one example based on two factors. There are other factors in play that aren't accounted for because you can't put a dollar value on it. These can be loss of life, brand reputation, and client discontent.

Comparing the Cost of Security Solutions

Another way to figure out the ROSI is by comparing security solutions. One of the most commonly compared security options is security guards and video surveillance.

Companies hire security guards to patrol their property. They believe having a body on the property deters crime. Whether they're armed depends on the state's requirements, training, licensing, and security company.

Video surveillance involves putting cameras in strategic locations around the property. One critical factor that you need with video surveillance is monitoring. Not having someone watching the cameras can be a liability risk.

Think about it. When people see the video surveillance cameras in the parking lot, they assume someone is watching. If something happens, they think the person on the other end will call it in. It gives them a false sense of security. That can be a liability issue. Monitored video surveillance can lower liability.

Without comparing the advantages and disadvantages of each, consider the costs. The cost of security guards varies by company and state. In a real-life example, a Dallas retail center paid $14,000 per month for security guards to watch the property. That's $168,000 a year.

The shopping center needed to find a cheaper security solution. It switched to video surveillance. One year of video surveillance plus the equipment cost $64,000. That's almost 60 percent less than the price of security guards. The equipment is a one-time fee. Once that's paid off, the company only pays for the monthly surveillance. The longer they use video surveillance, the cheaper it gets compared to security guards.

Depending on the solution, remote video surveillance can save between 25 percent and 60 percent. Between paying for the hardware and the monthly monitoring, you can see a ROSI within four to six months when you compare it to a security guard.

Video Surveillance Vs. Security Guards

Remote video surveillance isn't just less costly, it's more effective. The biggest differentiator is that the person watching the cameras is not on your property. At first glance, that sounds like a disadvantage. Security guards are on site and can be there to act.

Nonetheless, when you read the stories and think about it for a little bit, you can see why it can become a problem. Security guards are not police officers. The training security guards receive is a drop in the bucket compared to what the police officers go through. You could hire off-duty police officers, but they cost more than traditional security guards.

Video surveillance relies on a combination of human and video analytics to identify suspicious activity. As soon as the analytics detects a specific scenario, it alerts the trained security operator who checks out the activity. Because operators aren't on site, they don't fear for their lives like a security guard might.

A study from CNN and the Center for Investigative Reporting has found that many security guards have a criminal history. On top of that, security guard turnover is also so high that 31 states do not require background checks. That said, it won't surprise you that security guards are a liability.

Another big benefit of video surveillance is the evidence it provides. It records everything. Occasionally, an incident arises days or weeks after it happened. Analysts can review the footage to find the incident. Security guards will not likely have videos of what's happening. That's because they either catch something after it happens or they're busy doing their jobs.

Video surveillance is proactive in that it can help deter crime. If an intruder approaches the property, video cameras can see it. Monitoring operators can issue a warning over the speakers and call the police. They can safely follow the prowler until the police officers arrive.

In short, you'll get a fast return on your security investment with video surveillance. Here's a case study of how video surveillance reduces crime and saves money

Posted in: Crime Prevention, Video Security Systems, Security Guards & Savings, Video Monitoring