What’s the ROI on ROI?

What’s the ROI on ROI? | HRDQ-U Blog

Written by: Patti P. Phillips, Ph.D., and Jack J. Phillips, Ph.D.

The ROI Methodology®, the most recognized approach to ROI evaluation, provides organizations a process that can cut across organizational boundaries, linking programs, processes, and initiatives to bottomline measures. When an organization implements the ROI Methodology, the concern about the value or payoff of this approach becomes an issue. This process, when used properly, initiates a shift from activity-based to results-based. The activity-based approach focuses on developing programs, counting people involved, and reporting data about activities. The results-based approach requires that programs begin with the end in mind with specific business measures. It also involves a continuous focus on results and creating expectations from all involved to deliver the results.

 

>> Learn more at ROI Institute’s Live Virtual ROI Certification Session.

 

This shift is often met with resistance from those who are involved in the process. This approach requires program designers, developers, facilitators, and coordinators to consider accountability early and often and shift how programs are deployed. Because of this, the investment in ROI implementation becomes significant, not only in direct costs but also in time and effort. Sometimes, this is perceived as extra work instead of an opportunity to show the connection to business value. So, the obvious question is, “Is this worth it?” Although most executives suggest that this approach is necessary, and the “ROI on ROI” is not needed. However, it is a helpful and recommended exercise.

The Benefits

Clients who have experience implementing this methodology have reported many benefits that typically fall into these six categories.

Projects are Improved

The top benefit of using the ROI Methodology is that the data drive improvement in projects and programs. When projects are not delivering the value needed, i.e., a negative ROI, the data indicate what needs to change to deliver the proper business value. Some users report their application of the process has led to the removal of unnecessary programs. When programs are successful, data are collected to show how new improvements can be made to make them more successful.

Funding is Secured

Additional funds are often attributed directly to the use of the ROI Methodology. Some budgets have increased significantly, even in the face of budget reductions in other parts of the organization. Some users have been able to secure funding on a pre-program basis with an ROI forecast. Others use the ROI Methodology to justify next year’s budget.

New Projects are Implemented

Some users evaluate a pilot program to determine if that program should be implemented in other areas. Capturing six types of data creates a much better database for decision-making. When executives and sponsors are convinced that the program is adding value, particularly with a positive ROI, this same project can be implemented in many other business areas. This lowers the risk associated with the decision to implement.

Support is Generated

Support of projects and programs is an area of concern for most project leaders and program directors.  Additional support is almost always needed, particularly from middle-level managers. When the ROI Methodology is used, these managers have more data about the success of programs. When programs and projects drive impact and ROI data, managers will support the effort. ROI users report examples of a dramatic increase of support from middle-level managers.

Relationships are Enhanced

Collecting data to show the value of projects and programs is one of the best ways to enhance relationships. To be effective in an organization, users must work with a variety of clients and stakeholders. Productive relationships with key managers must be developed. Many users of the process indicate that relationships with business partners have improved. As one manager of a brewery in Europe stated, “Presenting an ROI impact study was the first time I had an intelligent business discussion with the CEO, and it made a tremendous difference in our relationship going forward.”

Image is Improved

When data reveal the success of various projects and programs at the impact and ROI levels, the image changes. Some organizational functions have a reputation for not contributing value. Critics question the value of projects and programs in these areas. While this change does not occur overnight, users report the image of the function has been enhanced considerably with the use of ROI, graduating from the perception of an activity-based cost center to a results-based investment center.

Monetary Benefits

The good news is that the specific benefits from this implementation can be credibly converted to money. The monetary impact can be derived from these critical areas.

Program Effectiveness is Improved

When evaluation studies are conducted, there are almost always improvements to be made, and these can be easily converted into money. For example, when a program delivers a positive ROI, usually there are recommendations about what is needed to increase the ROI. Those recommendations are implemented, and the ROI can be calculated again. When steps are taken to improve the program, the impact increases, and the corresponding monetary value of that impact increases. The monetary value is already calculated as part of the ROI Methodology, so it is a matter of showing the improvements in money connected to the revised program. The difference in monetary benefits, the numerator of the two calculations, shows the monetary value of this revised program, caused directly by using ROI evaluation.

This benefit is even more dramatic when a program is evaluated, and it has a negative ROI. Changes are often made to make it positive, and it is re-evaluated. The monetary benefit change is the difference in the numerator of the two calculations. These benefits can be substantial, particularly for a program that is implemented across an entire organization.

Successful Programs are Expanded

When the ROI Methodology is used to evaluate a pilot of a new program, tremendous benefits can be found. First, a pilot program is assessed, and the results are positive. The program can be implemented now, across the organization, with confidence. The value-added with this program is attributable to the use of this methodology.

The second option is when a particular program is requested, but the evaluation of the pilot using this methodology shows that it does not deliver monetary value. Consequently, the program is not implemented. The savings can be tremendous. Typically, the program would have been implemented, and an enormous amount of money would have been wasted on the program. If this situation occurs in just one program, it should pay for the complete ROI Methodology implementation.

Ineffective Programs are Discontinued

Sometimes an ongoing program is evaluated, and the data shows that it does not add value. Those programs need to be removed, thus saving the organization a tremendous amount of money.

The Cost

The cost of this implementation should be tracked and involve all ongoing direct and indirect costs. It is not only the cost of direct services provided by ROI Institute but also the cost of the certification for the team. It would include the cost of conducting studies during the evaluation period, emphasizing both the direct and indirect categories.

ROI

The ROI is calculated as the cost versus net benefits. Using the monetary benefits derived above compared to the cost of the ROI will show the ROI calculation. Although the calculation is encouraged on every major ROI implementation, only a few organizations have shared their results with ROI Institute. These range from -12% to over 500%. No organization has asked for a refund based on this analysis.

The Approach

The suggested approach to capture these data is to assign an individual or a group to this task. It is more effective if a small group, a task force, works together to develop the ROI on the ROI. Initially, this group would track all the costs for the ROI implementation. Then, they would track the monetary values derived from conducting ROI studies at the impact and ROI levels, as described above. These are monitored and tallied on an Excel spreadsheet over a two-year timeframe to calculate the actual ROI.

The Intangibles

Many intangibles are derived from the use of ROI. The intangible benefits are the benefits that are not converted to money. One benefit is the effective use of data at lower levels that do not necessarily translate into impact and ROI. This is important when building an evaluation system. Also, there are benefits derived from improving the image of the learning and development function, building business partnership relationships, and improving the efficient use of learning and development. This translates into positioning learning and development in more of a strategic function within the organization.

ROI Certification® introduces the ROI Methodology®, the gold standard in demonstrating the impact and ROI of all types of programs and projects. Professionals utilize this process to design and deliver valuable programs to their organizations. With a 25-year track record, ROI Certification leads the way in changing the approach to designing and measuring solutions to achieve goals. Learn to systematically and credibly show the value of what you do.

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