Savings on InvestmentOne great misconception about ROI is that cost savings on the budget are considered a return on investment when in actually a Savings on Investment (SOI) is being realized. If I give you a dollar and you deliver services for $.80, the $.20 saved by investment terms is not an ROI which reflects the way true "value" is defined. The typical SOI approach impacts the organization in two basic ways: cuts to the budget and improvement of organizational processes-known as the "cost savings orientation". The highest form of SOI activities include reliance on the discovery of mass economies of scale, hyper-efficiencies, and business processes that reduce waste and time, such as Six Sigma initiatives.
Though a necessary step for maximizing available resources, this "cost savings orientation" is a process of diminishing returns that seeks to solve short-term goals, but may misinterpret business needs that drive clients, and potentially fail to inspire break-through value for the organization. If the leader and team considers budget dollars to be a line item to fulfill or beat and the goal is to make the client happy, the emphasis is often steered away from generating greater value. The results are entirely different if the same budget dollars are considered an investment to make the client successful. An often more productive alternative to an isolated SOI mentality or "cost savings orientation" is an ROI perspective or a "value orientation" that assumes that all spending is an investment that requires a cost/benefit analysis and business case, including measurable outcomes and alignment with company strategies for success.
Return on InvestmentThe ROI of a project or groups of projects assumes a measurable financial return that is connected to the overall success of the organization. Through the "value orientation", leaders and teams seek a longer-term, strategic benefit, which interviews, surveys, and focus groups will not reveal. Measuring business impact requires statistical analysis to isolate the benefit from other possible inputs to the benefit. In contrast to the pure "cost orientation", the "value orientation" relies on greater connectivity and communication between interacting departments-a systems view that is aligned with the strategic goals of the organization. In addition, departments could realize stabilized or increasing returns as they educate management about their documented value propositions. They may experience increased creative breakthroughs as they consider strategic outcomes and gain a better understanding of the business drivers for internal clients. Measurement of ROI is much more than the typical historical look at the benefits of a current project. Using an analytics approach, through careful identification of intervention and control groups, departments can tease out additional metrics to optimize their strategies and deploy successful projects across the enterprise for even greater returns. Long considered too expensive, complicated, or even impossible, measuring business benefit is not only possible, it is fast becoming a business imperative.
Measuring the OutcomesZemo Trevathan and Associates, Inc. designed a methodology and approach to measure outcomes for specific initiatives, functions, or programs. The output will allow the organizations to utilize this methodology and approach for future projects to determine return on investment (ROI), impact on strategic goals and optimization of resources. The following are performance criteria for success:
- organizations has a documented process flow and defined steps to measure performance outcomes for future projects and initiatives
- The deliverables for this project meet stated objectives and requirements
- Project team members are provided training in the approach and methodology
- What was the return on investment?
- What difference did it make on the agency's strategic goals?
- What worked best and for whom?
- What is the best deployment strategy for the project being measured?
- What could the potential benefit be for future years? For other regions?
|Opinion outcomes||Financial outcomes|
|Cost Savings||Return on Investment|
|Short-term strategy||Long-term strategy|
|Maintain status quo||Continuous growth|
|Budget analysis||Business impact|
|Spray and pray Optimizing||deployment|
An analytics approach requires three basic variables:
Who was affected by the project? Criteria for selection of project to measure:
a. Representative target group of the project
b. Shares similar tasks and actions expected from the project
c. Descriptions help to determine subtle differences of impact from the project.
Description and dates the project was implemented. Criteria for selection of project to measure:
a. Alignment to agency's strategic goals
b. Large budget for which certainty of outcomes required.
c. High profile
d. Well-defined intervention and control groups
e. Data accessible
f. Representative for other similar projects and participants
g. New project that needs proving vs. ongoing programs
What performance metrics reflect the desired outcome of the project? Criteria for selection of project to measure:
a. Data available for all participants in the intervention and control groups
b. Output of data in spreadsheet form by time increments and participants
c. Data represents outcome metrics that represent the goals of the project
d. If possible, assign dollar-ized value to the outcome metrics.