Many Creative Service and Marketing Managers have great ideas to improve productivity and efficiency but many of those ideas require investments in additional resources like technology, equipment or staff to make them viable. Many great projects wither on the vine because champions could not convince management or finance of the efficacy of their idea. The presentation of ROI (Return on Investment) and other cost benefit analysis can improve the chances of important projects being approved.
ROI represents the value of a project to the enterprise. The value calculation is important to decision makers, because monetary resources are limited and they need to decide which projects to undertake to put these resources to best use. If you want the best chance to get approval for your project, you will need to show the highest ROI of competing projects.
The ROI formula is relatively straightforward. The numerator represents the net benefits of the project, so the project benefits less project costs. The denominator is the project costs.
It is generally easy to convert costs to monetary values, but it can sometimes be a challenge to convert benefits to monetary values. When it comes to quantitative value, if it exists, it can probably be measured. Take human intelligence as an example. Intelligence is an extremely complex abstract concept yet psychologists have come up with a way to quantify it through an IQ score. So it is possible to quantify and convert all project benefits to dollars.
Easy-to-convert benefits can include expected time savings from process changes or from adopting technology to help improve or automate processes. It can also include savings or cost avoidance by insourcing internal processes or technologies that were previously outsourced. You can use ROI to help make the case for your department's existence. For example, if you can calculate the cost savings your department provides over outside agencies doing the same work and you have cost data available, you can calculate an ROI for your department.
Difficult to convert benefits might be improved customer satisfaction, improved cycle time and improved accountability to name a few. The more important question is this:… Is it worth the time and effort to convert them, or is it acceptable to present them as "soft" benefits? I believe that intangible benefits can be crucial in evaluating the potential of a project. Some projects are implemented primarily because of their intangible benefits. They may not carry the same weight as measures expressed in monetary terms, but they are nevertheless important. So any project should include a tangible and credible ROI calculation and a list of intangible benefits expected from the project’s undertaking.
One key point here is the qualifier "credible." You can use ROI to validate past decisions by calculating the effect a project has had on your operations. All you need to do is agree on measurements, measure the baseline state and value the change in performance. Credible, in this case, means that you are measuring benefits that can clearly be attributable to your project and no other factors. Historical ROI data can help you sell future projects by validating your past claims. Past success makes your future claims more credible. When you use ROI to sell potential projects, you need to make sure your projected benefits are directly attributable to your project, demonstrate that your benefits are measurable and ensure that your projected change in performance is credible. You may, less credibly, borrow industry expert analysis and project it upon your organization. If you present unsubstantiated claims of improved productivity or reduced costs you run the risk of making the entire project incredible.
Here is a brief example of how this might work. Let's assume you wanted to buy a workflow tool to more efficiently manage your process. The cost would be relatively easy to collect. You might include the cost of software, licenses, support, hardware, customization and training. Let's assume that we believe our benefits will be improved productivity, improved accountability, improved client satisfaction and reduced cycle time. It will be relatively easy to calculate improved productivity by measuring how long it takes us to process jobs in the current state vs. how long it would take to accomplish the same tasks after installing a system. Potential vendors would be happy to help you calculate this change in performance. It might be difficult to credibly calculate the value of improved accountability, improved customer satisfaction and reduced cycle time. If your case is strong enough without attempting to value these things, don't bother. Just leave them as powerful intangible benefits.
The inclusion of ROI and other cost-benefit analyses in your proposals before you undertake future projects can significantly improve your chances of approval. It’s advantageous to forecast ROI and calculate realized ROI for all major projects. This process will require project teams to cooperatively work through detailed cost-benefit analysis, can help make project champions more accountable for the project's execution and make your organization better at choosing projects that offer the best chance of favorable outcomes and all-around success.