Business Matters:

Making the Business Case for Records Management

Editor’s Note: This article is excerpted from Records and Information Management: Fundamentals of Professional Practice, 2nd Ed., which is scheduled for publication in February 2011 and will be available from the ARMA International Bookstore at www.arma.org/bookstore.

Recorded information is a strategic asset that makes direct, significant, and indispensable contributions to an organization’s objectives, efficiency, and effectiveness.

William Saffady, Ph.D.

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When properly managed, records will ensure compliance with legal and regulatory requirements, promote continuity of business operations in the event of a disaster, support policy formulation and decision-making, and protect the rights and interests of an organization’s stakeholders.

The need for recordkeeping is indisputable; it is an ordinary and necessary component of virtually all business operations. In some cases, laws and regulations specify that certain records must be created and maintained for designated periods of time.

Legal requirements aside, records are a necessary aid to memory. They document an organization’s decisions, actions, transactions, and other activities. Records management concepts and methods provide systematic, well-developed approaches to recordkeeping operations that individual departments would otherwise perform themselves, without direction and, presumably, with less knowledge, skill, and effectiveness. Thus, the business case for systematic records management is based on its instrumental value for effective recordkeeping.

Quantifiable Benefits of RM

Systematic records management must provide demonstrable, quantifiable benefits for essential business operations or activities. Further, the quantified value of the benefits must exceed the cost to develop and implement systematic records management initiatives. The difference between the quantified value of benefits and the cost of records management initiatives is the value added by systematic records management.

Systematic records management can deliver demonstrable, quantifiable benefits by reducing operating costs, by minimizing risks, and by increasing revenues.

Reduced Operating Costs

Recordkeeping is a necessary but expensive activity. Recordkeeping costs are an important, if often unrecognized, component of an organization’s operating costs. Cost reduction has been an attainable objective of systematic records management for over half a century.

The earliest records management initiatives emphasized cost-effective storage and retrieval of operating records in large corporations and government agencies. For many organizations, cost reduction remains the principal motive for systematic records management.

In for-profit businesses, systematic records management can deliver savings that have a direct, beneficial impact on the bottom line. When justifying costs, money saved is the same as money earned. Efficient recordkeeping contributes to profitability by lowering the cost of doing business.

In government agencies and not-for-profit organizations, cost reduction initiatives have a direct, beneficial impact on mission. Money saved through more efficient recordkeeping can be directed to essential programs and services.

Systematic records management can reduce recordkeeping costs in several ways:

Organizations can reduce records volume, storage requirements, and costs. Many business processes generate voluminous records that require large amounts of storage space as well as expensive equipment and supplies. Corporations, government agencies, and other organizations frequently complain that they have too many records. While recorded information is a valuable business resource, many organizations waste money by retaining older records – such as customer correspondence pertaining to closed accounts, database records associated with completed business transactions, and obsolete versions of revised reports – that are no longer needed.

A systematic records management program can reduce storage requirements and costs by identifying and discarding such obsolete records. For records that must be kept, offsite storage, microfilming, or scanning can be used to minimize office space requirements and reduce retention costs.

Systematic records management can reduce labor costs and improve recorded information. Recorded information is useless if it cannot be retrieved when needed. The organization of recorded information for effective retrieval is a difficult task, and many file maintenance operations are labor-intensive and consequently expensive. Systematic records management adds value to actively referenced information by making it easier and less costly to retrieve and use.

Through a combination of manual and automated approaches, systematic records management initiatives can reduce labor costs and improve the retrievability of recorded information. Well-developed filing systems and procedures, for example, reduce operating costs by making efficient use of administrative labor, filing equipment, and supplies. They also improve productivity by minimizing time-consuming file searches, expediting tasks that depend on the timely availability of recorded information, and preventing needless duplication of previously completed work.

For business operations with complex document retrieval and control requirements, computer-based methods can reduce costs by minimizing labor requirements for file creation, maintenance, and control and by speeding document retrieval, thereby expediting business operations and improving employee productivity.

Organizations can reduce potentially costly consequences of adverse events on vital records. For mission-critical information, records management concepts and methods emphasize improved security precautions, combined with offsite storage of backup copies, to minimize risk, simplify the reconstruction of recorded information, facilitate the resumption of busi-ness operations, and otherwise reduce the potentially costly consequences of adverse events.

Minimized Risk

Records management is increasingly viewed as an important component of an organization’s risk management initiatives, which itself is an important component of an organization’s strategic management. In particular, a systematic record retention program can minimize risks associated with legal matters and regulatory compliance.

As previously discussed, laws and government regulations specify retention requirements for records associated with certain business operations. Such requirements promote the enforcement of laws by ensuring that government auditors will have access to required information about specific business activities. Failure to comply with legally mandated recordkeeping requirements can be costly. At a minimum, an organization incurs a risk of fines or penalties for failure to produce commonly encountered records requested by government auditors. (See the sidebar “Examples of Legal Mandates for Recordkeeping” below for several examples that might be cited.)

By consulting appropriate reference tools and working with legal counsel, systematic records management initiatives identify laws and regulations that apply to specific records. To ensure compliance, legally mandated recordkeeping requirements are incorporated into records management policies and procedures.

Systematic records management can also reduce an organization’s exposure in civil litigation and government investigation. Recorded information plays a critical role as evidence in product liability, personal injury, breach of contract, wrongful dismissal, and other lawsuits as the opposing parties seek to use documents, data, and other information to prove their contentions.

In the absence of clear, authoritative retention guidance, employees may unknowingly destroy records that are relevant for litigation, government investigations, or other legal matters, thereby exposing an organization to charges of spoliation (destruction) of evidence with intent to obstruct justice.

Further, in the absence of systematically developed retention policies, an organization will not be able to convincingly affirm that specific records requested during discovery by the opposing party were destroyed in the regular course of business prior to the commencement of legal proceedings.

Systematic records management initiatives can identify records that may be relevant and useful for future litigation, ensuring that those records will be available when needed. Effective retention practices can also reduce the logistic burdens and costs of legal discovery by discarding obsolete records in a timely manner before lawsuits or government investigations are initiated. The cost of document production is related to the quantity of documents that must be produced, which in turn depends upon the quantity of records that the responding party has in its possession.

In the absence of effective retention policies, many obsolete records, including outdated documents and drafts, will come within the scope of a discovery order. These records must be identified, retrieved from their storage locations, reviewed for privilege, catalogued, copied, delivered to the requesting party, and returned to storage.

If the records in question are stored offsite by a commercial provider, an organization will incur retrieval, re-filing, and delivery charges to comply with a discovery order. The organization must also place a litigation hold on these records, thereby incurring storage charges until legal issues are settled. Given the high cost to produce records in response to a discovery order, an organization may decide to settle rather than contest a dubious claim. The opposing party may make a burdensome document production request with the possibility of a settlement in mind.

For government agencies, retention of large quantities of obsolete records will increase the cost to comply with freedom-of-information law requests. As the quantity of records increases, the burden of protecting personally identifiable information or other confidential records against unauthorized access will increase as well. Regulatory agencies can impose substantial penalties for the failure to protect such information.

For example, banks and other financial services institutions are subject to fines up to $100,000 for failure to safeguard customer information as required by the Financial Services Modernization Act. Also, organizations can incur large fines for failure to safeguard and dispose of consumer credit information as prescribed by the Fair and Accurate Credit Transaction Act.

Increased Revenues

Systematic records management can add value to business operations by increasing an organization’s revenues. Adding value can occur in several ways:

Systematic records management initiatives can create business opportunities. When managed effectively, recorded information can have marketable, quantifiable value in certain business situations. Mailing lists and customer intelligence information, including demographic or other data about purchasing habits, preferences, and patterns, are obvious examples. In addition to being useful for an organization’s own purposes, these information resources are products that can be sold to interested parties.

Recorded information is an important component of a marketable object or service in other cases. As an example, effective recordkeeping systems support the profitable exploitation of an organization’s intellectual property, such as proprietary technologies, trade secrets, patents, product formulations, trademarks, and copyrights. Technology transfer agreements involving the sale or licensing of patented or unpatented inventions or manufacturing processes depend on accurate, complete records that describe the inventions or manufacturing processes in detail. The availability of thorough documentation for these highly valued knowledge assets can also be an important consideration in mergers and acquisitions.

Systematic recordkeeping practices confer competitive advantages that can lead to increased revenues. Records
management’s contributions to competitive advantage are based on widely cited “value chain” concepts, which view the creation of a product or service as a series of interdependent activities, each of which adds value and costs to the final offering.

The value chain model treats recorded information as a critical supporting element in business operations. From a value chain perspective, an organization with effective recordkeeping practices must enjoy a competitive advantage over an organization with less effective or ineffective ones.

By organizing and expediting the retrieval of valuable information and by eliminating irrelevant information through formally developed retention policies and procedures, systematic records management facilitates procurement, order processing, accounting, product scheduling, marketing, post-sale service, and other value chain activities.

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William Saffady, Ph.D., can be contacted at wsaffady@aol.com.

From January - February 2011