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Top Tips for Improving Return on Investment

ROI is a balancing act – It is almost impossible to take emotion out of the equation when calculating ROI. As humans we are both rational and irrational beings and pretending we are otherwise is futile. In order to fully understand ROI both sides of the cost and value equation should be considered.

Sharp pencilIdentify Value – There are three aspects to value. Tangible, intangible and peripheral. When considering ROI value should be identified in all three categories.

Tangible Value – This category of value can be measured and targets can be set. To identify tangible value the most powerful question to ask is ‘so what?’ If we invest in this activity what will change and what will be the effect of this change and how can we measure this in money, time, efficiency, service, percentage, etc. terms? When demonstrating an improvement in tangible value ensure you have a good understanding of the starting position and a reasonable grasp on cause and effect. It is rare for any single activity or project to impact a performance metric in a direct way without interference from something else. For example limiting the speed of trucks will improve fuel efficiency but the wind speed, route, freight loading and gradient of the journey all have an effect as well.

Intangible Value – This is the positive consequence of taking the action that cannot be measured in tangible terms but can in every other sense be priceless. There are many examples of investments that produce dubious and poor tangible returns that are worth investing in. Reading to our children at night is a great example in our personal lives – we intuitively know this is a great thing to do and we do it for all kinds of intangible reasons. In our business example limiting the speed of trucks can help reduce the chances of accidents and reduces the stress of driving and this in turn can improve the safety of the job for our drivers.

Peripheral Value – This is related to the activity or undertaking but is not directly attributable to the benefit being delivered. For example limiting the speed of trucks reduces CO2 omissions and contributes to the reduction of greenhouse gasses. This reduction can be both tangible and peripheral as it can be measured and then claimed in a marketing campaign that enhances the credibility of the brand we are transporting.

Identify All Costs – All too often the cost of change is measured simply in terms of money to be spent or invested. The total cost of disruption, the potential risks and costs of failure and the energy and effort required to make the investment really work well is all too often not understood or simply ignored. We are all fed up of hearing about yet another computer system that has been a failure in the public sector costing the tax payer millions. I know the press rarely headline the successes but these failures are particularly galling when cuts elsewhere abound. There is a good chance these computer systems fail to deliver their intended benefits as they underestimated or simply ignored the investment required for implementation. The effort needed to win over the hearts and minds of the intended users or adequately deal with the concerns that they will have when confronted with the need to learn a new way of working, or learn a new habit or skill. This investment is one of time, energy and money and needs to be balanced against the TIP benefits identified above if a true ROI picture is to be understood.

 

Implementing these insights will give you the best chance of getting a great return on the time you invest and make your efforts and enthusiasm feel worthwhile. If you have enjoyed this article you can get more for tips on how to maximise Return on Time (ROT) and Return on Energy (ROE) by emailing:  mfollos@senseiuke.com