31 Mar Make ROI work for you
Return on investment has become a national obsession. Like Mom and apple pie, it’s hard to argue against it. But in many organizations ROI has become more of a steamroller than a financial tool, and it is not always clear who is in the driver’s seat. Because it’s complex and often poorly defined, it rumbles through organizations, squashing otherwise appropriate proposals while confused employees duck out of the way. Some organizations throw away the keys to the steamroller altogether. They talk about ROI but never measure anything. To date, I haven’t seen any analysis estimating just how much all this financial naval-gazing costs, but it certainly introduces another kind of overhead.
ROI is straightforward as a financial ratio. The return-on-a-stock investment is the gain or loss divided by the price. But can it be accurately adapted to represent the value of employee training or a new software investment? The apparent costs are obvious and the benefits are a vague formula involving user satisfaction, estimated improvements to business processes or other intangible factors. Focus too narrowly on only the attributes that are easily represented by numbers and many of the benefits will disappear. On the other hand, if you try to tally up every immeasurable potential value and somehow connect it to a metric, the exercise will become meaningless.
If we can’t stop the steamroller, it’s time to try and climb into the driver’s seat. Here are some suggestions for applying ROI and all those other measurements as supplements to decision-making, not replacements for it.
1. Get ahead of the game. If metrics haven’t yet been defined for your area, be the first one on the block. You’ll get more input into what and how you measure and how those measures are used.
2. Make sure you know what’s important to your boss and her bosses. Sometimes managers will have favorite projects or departments. If you can establish a link to one of these fast-track initiatives, the detailed accounting may be irrelevant.
3. Measure what’s important, not just what’s easy. Start with business goals, not the list of available metrics. Blend measurement techniques to make a point. Combine easy-to-collect Web statistics with a small sample of user interview results.
4. The executive summary is your best friend. Of course you should include details as necessary, but most decision makers don’t have time to wade through the data. They want to know the conclusions and how you got there. This is your opportunity to frame the discussion.
5. Find out what metrics count in your organization. ROI is not the only metric, although its popularity has led to many different implementations. Check with your financial, accounting or auditing departments and find out if there are standards.
6. Ask for help. Ask decision makers and accountants how they make their decisions and what information (and data) they find helpful. If standards can be developed employees won’t have to start from scratch and managers won’t have to compare apples and oranges.
7. Keep it simple and keep it up. Consider what you can do with a small number of consistently applied metrics. In one case I was successful measuring research relevance with only three questions. It wasn’t an exhaustive survey, but I used it each time I sent a report so I was able to establish an on-going, consistent measure.
8. IT budgets often bear the burden of many unglamorous maintenance, operation and replacement costs. This stuff can be pretty unexciting but contributes to every fancy new initiative. Prepare a stacked diagram of these expenses; starting with facility and power costs, moving up through hardware and software upgrades, and on to SLA agreements. Keep it in your back pocket and haul it out often.
And last but far from least, if you have to talk with numbers listen to what they say. Displaying positive ROI is great if the numbers support it, but don’t get too carried away. Be prepared to let the measurement speak for itself. If some activity, product or service doesn’t measure up, let it go and take the credit.
Byron Glick is a principal at Coherent Partners, LLC, a technology management-consulting firm in Madison, Wisconsin. He can be contacted via the web at www.coherentpartners.com or via telephone at 608/442-0120.
The opinions expressed herein or statements made in the above column are solely those of the author, & do not necessarily reflect the views of Wisconsin Technology Network, LLC. (WTN). WTN, LLC accepts no legal liability or responsibility for any claims made or opinions expressed herein.)