How to avoid the overthinking trap in ROI analysis
There’s no doubt that ROI (return on investment) analysis sounds alarming. The prospect of analysing anything can seem daunting, and the fact that there’s a TLA (three-letter acronym) involved just adds to the sense of not knowing where to start.
That’s on top of the practical problems of evaluating a project at the same time as running it – a situation with which many teams of one may be familiar. Then there’s the fear of making a mistake – perhaps using the wrong data because you don’t fully understand the process – and ending up with unusable data and damaged credibility.
ROI analysis can turn into an analysis of ourselves: overthinking things and worrying that the exercise will reveal that our programme isn’t as effective as we hoped.
However, the fact is that ROI matters. Business leaders need to know the value of the programmes and projects they commission against their costs. We need to know too, so we can ensure our work is making a difference.
The following simple tips will help you get started on analysing ROI rather than overthinking it. I’ll focus on level 4 evaluation, which is typically the level of data executives want. You may wish to revisit our How to Measure Financial Return on Investment in Your Business Initiative guide that you downloaded, for a reminder of what the levels mean and how to evaluate results at each level.
First steps
Think of other challenges you’ve overcome in your career – there will have been many. How did you get over that feeling of not knowing where to start? It’s likely that you broke down the challenge into smaller parts so you could work out how to prioritise them. So take the same approach with ROI analysis.
Focus on the organisation
Think about the organisation’s goals and KPIs, and work out which one(s) your project is best aligned with. You may need to dig beneath the surface: for example, look into plans for sales growth and customer satisfaction commitments as well as high-level business goals.
You can also engage executives in the ROI process at this point. Focus on their objectives and targets for the organisation, and use their estimates and calculations to understand what success means to your organisation’s leaders.
It’s likely that you’re done much of this already. For example, you may have aligned your project’s objectives to business goals or done a needs analysis to identify gaps. Use this information to show how your project is designed to address specific needs.
Look to the end
Focus on results, not activities. It’s easy to get side-tracked by activities because they tend to stick in the mind when we think of project planning. Instead, put yourself in a business leader’s shoes. Will they want to know what people did during your project or what they did as a result of it?
Draw yourself out of activity-planning mode by defining what results you want your programme to achieve. Have the organisation’s goals in mind as you do this, so you can check that the programme aligns.
Be specific
ROI is a field in which details really matter: after all, you’ll be using your data to compare one set of outcomes with another, so they need to be concrete and specific. For example, a planned outcome simply to raise awareness of a new process doesn’t provide anything to measure. Tweaking the outcome to ‘Increasing application of the process by 25 per cent across the business by the end of this financial year’ does.
Use the SMART* model as a basis for developing your outcomes: it’s an oldie but a goodie that will keep you focused on measurable outcomes, and make the job of converting data in the ROI process a lot simpler later on.
Now focus on you
You’re going to be deeply involved in the ROI process, so it’s essential that you’re comfortable with the project or programme’s desired outcomes.
Take a deep breath and schedule some uninterrupted quiet time to reflect deeply on what you want the programme to achieve. Do the outcomes seem achievable given your knowledge of the organisation? The project won’t get far if you don’t believe in it.
In summary
In the end, it’s all about trying to show how your programme benefits the organisation and impacts business results, which is necessary because if there is no business impact, there can be no ROI. Remember, the ROI calculation itself is straightforward – you just need to link your programme to business results.
* SMART objectives are: Specific, Measurable, Achievable, Realistic and Time-bound
There’s no doubt that ROI (return on investment) analysis sounds alarming. The prospect of analysing anything can seem daunting, and the fact that there’s a TLA (three-letter acronym) involved just adds to the sense of not knowing where to start.
That’s on top of the practical problems of evaluating a project at the same time as running it – a situation with which many teams of one may be familiar. Then there’s the fear of making a mistake – perhaps using the wrong data because you don’t fully understand the process – and ending up with unusable data and damaged credibility.
ROI analysis can turn into an analysis of ourselves: overthinking things and worrying that the exercise will reveal that our programme isn’t as effective as we hoped.
However, the fact is that ROI matters. Business leaders need to know the value of the programmes and projects they commission against their costs. We need to know too, so we can ensure our work is making a difference.
The following simple tips will help you get started on analysing ROI rather than overthinking it. I’ll focus on level 4 evaluation, which is typically the level of data executives want. You may wish to revisit our How to Measure Financial Return on Investment in Your Business Initiative guide that you downloaded, for a reminder of what the levels mean and how to evaluate results at each level.
First steps
Think of other challenges you’ve overcome in your career – there will have been many. How did you get over that feeling of not knowing where to start? It’s likely that you broke down the challenge into smaller parts so you could work out how to prioritise them. So take the same approach with ROI analysis.
Focus on the organisation
Think about the organisation’s goals and KPIs, and work out which one(s) your project is best aligned with. You may need to dig beneath the surface: for example, look into plans for sales growth and customer satisfaction commitments as well as high-level business goals.
You can also engage executives in the ROI process at this point. Focus on their objectives and targets for the organisation, and use their estimates and calculations to understand what success means to your organisation’s leaders.
It’s likely that you’re done much of this already. For example, you may have aligned your project’s objectives to business goals or done a needs analysis to identify gaps. Use this information to show how your project is designed to address specific needs.
Look to the end
Focus on results, not activities. It’s easy to get side-tracked by activities because they tend to stick in the mind when we think of project planning. Instead, put yourself in a business leader’s shoes. Will they want to know what people did during your project or what they did as a result of it?
Draw yourself out of activity-planning mode by defining what results you want your programme to achieve. Have the organisation’s goals in mind as you do this, so you can check that the programme aligns.
Be specific
ROI is a field in which details really matter: after all, you’ll be using your data to compare one set of outcomes with another, so they need to be concrete and specific. For example, a planned outcome simply to raise awareness of a new process doesn’t provide anything to measure. Tweaking the outcome to ‘Increasing application of the process by 25 per cent across the business by the end of this financial year’ does.
Use the SMART* model as a basis for developing your outcomes: it’s an oldie but a goodie that will keep you focused on measurable outcomes, and make the job of converting data in the ROI process a lot simpler later on.
Now focus on you
You’re going to be deeply involved in the ROI process, so it’s essential that you’re comfortable with the project or programme’s desired outcomes.
Take a deep breath and schedule some uninterrupted quiet time to reflect deeply on what you want the programme to achieve. Do the outcomes seem achievable given your knowledge of the organisation? The project won’t get far if you don’t believe in it.
In summary
In the end, it’s all about trying to show how your programme benefits the organisation and impacts business results, which is necessary because if there is no business impact, there can be no ROI. Remember, the ROI calculation itself is straightforward – you just need to link your programme to business results.
* SMART objectives are: Specific, Measurable, Achievable, Realistic and Time-bound