ROI Survival Guide: Making Dollar & Sense From Your OD Programs
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Transcript of ROI Survival Guide: Making Dollar & Sense From Your OD Programs
©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited.
Making Dollar & Sense From Your OD Programs
ROI Survival Guide:
©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited.
On Measurement…
Knowing what to measure and Knowing what to measure and how to measure it makes a how to measure it makes a complicated world less socomplicated world less so..
Steven D. Levitt & Stephen J. Steven D. Levitt & Stephen J. DubnerDubnerFreakonomicsFreakonomics
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Purpose of PresentationTo present an easy-to-use method for establishing a financial return on dollars spent.
To convert intangible benefits into tangible benefitsTo quantify tangible benefits into financial termsTo build your skill in running simple, but powerful financial calculations
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ROI: A Systems Perspective
IndividualIndividualEmotional Connection
Personal RelevancePersonal Productivity
GroupGroupGroup Relevance
Group ProductivityMeeting Business Needs/Objectives
OrganizationOrganization
Solve business problemSupport business
objectivesIncrease profitability
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A Proactive Approach to ROI
Conducted prior to developing or implementing an initiative
Establishes quantifiable benchmarks
Encourages client to think through problem and solution; obtains buy-in prior to initiative
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A Proactive Approach to ROI
Estimates projected financial return beforedevelopment/implementation
Provides post-implementation comparison
Transforms OD from an activity to results-driven function
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ROI Challenges Unclear program objectivesCredibility and source of data used for calculationsConsistency in quantifying and analysisCost of conducting ROIUsefulness of dataAccountability inherent in ROI
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Evaluation Model
Level 1: ReactionLevel 1: Reaction
Level 2: RelevancyLevel 2: Relevancy
Level 3: PerformanceLevel 3: Performance
Level 4: Level 4: Business ImpactBusiness Impact Business Impact: Operational Efficiencies
Performance Impact: Applied on the Job
Effectiveness: Assessment
Evaluation: Feedback
Kirkpatrick’s Kirkpatrick’s 4 Levels4 Levels
Financial Impact: Value vs. CostLevel 5: Level 5: ROIROI
Phillips ROIPhillips ROI
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Data Collection
Level 1: ReactionLevel 1: Reaction
Level 2: RelevancyLevel 2: Relevancy
Level 3: PerformanceLevel 3: Performance
Level 5: Level 5: ROIROI
Level 4: Level 4: Business ImpactBusiness Impact Cost savings tied to business drivers
Performance reviews
Pre/post metrics
Surveys, questionnaires, , interviews
Kirkpatrick’s Kirkpatrick’s 4 Levels4 Levels
Phillips ROIPhillips ROIValue of cost savings; increased revenues
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The Process
Asking Asking QuestionsQuestions
Tangible Tangible vs. vs.
IntangibleIntangible
Dollar Dollar ValuationValuation
WhatWhat How ToHow To
Determine Needs
Determine Needs
DetermineSuccess Criteria
DetermineSuccess Criteria
QuantifySuccess Criteria
QuantifySuccess Criteria
DetermineValuation
DetermineValuation+
Data CollectionData Collection AnalysisAnalysis
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Knowing What to Measure
Asking Asking QuestionsQuestions
Determine Needs
Determine Needs
Determine SuccessCriteria
Determine SuccessCriteria+
Data CollectionData Collection
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Ask the Right Questions
Q 1: What is the business problem? (business/performance/workforce management)*Q 2: How is this issue affecting productivity/morale/attrition/effectiveness?(Business impact)Q 3: How does this issue affect your bottom line/profitability? (Financial impact)Q 4: What are the success criteria? (How will we know we’ve been successful?)*
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Ask the Right Questions
Why?Why?
Why?Why?
Why?Why?
Peeling the Onion
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Knowing How to Measure
Tangible Tangible vs. vs.
IntangibleIntangible
Dollar Dollar ValuationValuation
Quantify Success Criteria
Quantify Success Criteria
DetermineValuation
AnalysisAnalysis
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Defining Tangible vs. Intangible
Tangible = Quantifiable business results (increases in sales, accuracy, customer satisfaction, employee retention, market share)Intangible = Human and organizational impacts (image in job market, job satisfaction, thought leadership, market perception, PR)
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Intangible vs. Tangible
IntangibleIntangible TangibleTangible
Tangible Value ElementsTangible Value Elements
CostCost SavingsSavings Revenue Revenue IncreasesIncreases
+
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Tangible = Financial (Monetized) Value
Intangible
Cost Savings
New
Revenues
Intangible
Cost Savings
Revenues
Current
TangibleTangible
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Tangible or Intangible?
Specific business problem solved (e.g., businessSpecific business problem solved (e.g., businessstrategy poorly executed)strategy poorly executed) TT
IIRetention of intellectual capitalRetention of intellectual capital
Culture changeCulture change T/IT/ILeadership developmentLeadership development T/IT/ISuccession planningSuccession planning T/IT/IPerformance managementPerformance management T/IT/I
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Tangible vs. Intangible
Performance ManagementPerformance ManagementIncreased productivityIncreased productivityIncreased retentionIncreased retentionClearly defined goalsClearly defined goalsIncreased revenuesIncreased revenues
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Tangible vs. Intangible
Culture ChangeCulture ChangeIncreased competitivenessIncreased competitivenessIncreased efficienciesIncreased efficienciesReduced attritionReduced attrition
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Monetizing The Value: 3 Methods
GrossGross Cost/Benefit Percentage:Cost/Benefit Percentage: Cost/benefit percentage Cost/benefit percentage beforebefore subtracting all costs from the value (e.g., 400%)subtracting all costs from the value (e.g., 400%)
NetNet Cost/Benefit Percentage:Cost/Benefit Percentage: The percentage that reflects The percentage that reflects the value the value minus all costsminus all costs (e.g., 300% vs. 400%)(e.g., 300% vs. 400%)
Payback Period (6Payback Period (6--12 months):12 months): Indicates the number of Indicates the number of months in which the full investment can be recaptured months in which the full investment can be recaptured (e.g., 3 months; 4+ months, the program is “free”)(e.g., 3 months; 4+ months, the program is “free”)
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Peeling The Onion
Culture Change
Why are increased efficienciesWhy are increased efficiencies& competitiveness important?& competitiveness important?
Larger market share; Larger market share; production cost savingsproduction cost savings
Why change the culture?Why change the culture? Increased efficiencies; increased Increased efficiencies; increased competitivenesscompetitiveness
Why is larger market shareWhy is larger market share& production savings?& production savings?
Higher profitabilityHigher profitability
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Valuation of Results
Larger market shareLarger market share
Cost of InterventionCost of Intervention $ 500,000$ 500,000
Total ValueTotal Value $2,000,000$2,000,000
$1,000,000 (Cost Savings )$1,000,000 (Cost Savings )
Culture Change: Results of “3 Why’s”
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$1,000,000 (Revenues )$1,000,000 (Revenues )
Production cost Production cost reductionsreductions
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Monetizing The Value: Monetizing The Value: GrossGross Cost/Benefit PercentageCost/Benefit PercentageConverts the cost/benefit ratio into a percentage X 100 = __%X 100 = __%
Cost of InterventionCost of Intervention(Costs(Costs RevenuesRevenues ))++
($1,000,000 + $1,000,000)($1,000,000 + $1,000,000)
$500,000$500,000X 100 = 400%X 100 = 400%
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Monetizing The Value: Net Cost/BenefitCost/Benefit Percentage
Percentage reflecting the value minus all costs X 100 = __%X 100 = __%
Cost of InterventionCost of Intervention
RevenuesRevenues -- Cost SavingsCost Savings
($1,000,000($1,000,000 $1,000,000)$1,000,000) X 100 = 300%X 100 = 300%
$500,000$500,000
++ -- $500,000$500,000
Gross C/B Percentage: 400% Net C/B Percentage: 300%Gross C/B Percentage: 400% Net C/B Percentage: 300%
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Monetizing The Value: Monetizing The Value: Payback Period (36Payback Period (36--48 Mos.)48 Mos.)
Number of months needed to recapture the full investment
Cost of Intervention Cost of Intervention # Payback# PaybackMonthsMonths
==(Costs(Costs + Revenues )+ Revenues ) per Monthper Month
= = 9 Months9 Months
Total Value = $2,000,000Total Value = $2,000,000Cost of Intervention = $500,000 Time Period = 36 MonthsCost of Intervention = $500,000 Time Period = 36 Months
$55,555*$55,555*$500,000$500,000
*$2,000,000 *$2,000,000 ÷÷ 36 = $55,55536 = $55,555
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Case Study:Case Study:Succession Planning DataSuccession Planning Data
Data for calculations3-year projectionsDirect & indirect succession planning costs: $3,000,000Cost savings: $3,500,000Revenue increases: $6,000,000Payback period: 36 months
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Case Study: Case Study: ROI CalculationsROI Calculations
Gross Cost/Benefit Percentage:
Net Cost/Benefit Percentage:
Break Even Point:
433%433%
333%333%
2.75 months2.75 months
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Case Study: Case Study: External vs. InternalExternal vs. Internal
1. Which calculations do you want to use in establishingthe business case for hiring external consultants? Click all that apply.
2. What costs do you need to factor into calculating thecost/benefit percentage?
a, b
d
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Case Study:Case Study:Succession PlanningSuccession Planning
Data for internal vs. external costs# of profiles to be developed: 20Current # of internal OD consultants: 3OD consultant fully loaded hourly rate : $62.50External consultant fees:Internal OD consultant costs: Cost savings using externals:Cost savings using externals (%):
$180,000$180,000$100,000$100,000
45%45%
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$80,000
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Case Study: Case Study: Succession PlanningSuccession Planning
Additional financial justifications: % increase in costs: 45%Internal development cost/profile: $9,000External development cost/profile: $5,000
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PostPost--DevelopmentDevelopment
Verify Verify
NeedsNeeds Success Criteria
Success Criteria
DollarValuation
DollarValuation+
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Tangible/Intangible Benefits
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©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited.
Thank You!
Julia GeismanMillennium Learning, Inc.