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Dr. Tom Tonkin, Cornerstone OnDemand
Proving the Business Case – Are We Getting the Return We Forecasted? Rationalizing return on investment (ROI) is something that many of us have had to deal with for quite some time. In the late-1990s and early 2000s, I was an advisor to new e-commerce startups. I met with companies that wanted to create senior citizen portals (let that sink in) to sites that would sell hand-crafted goods. We discussed traffic, viability, and marketing strategies, but we never discussed ROI. This was a time in IT history where, as the movie quote states, “build it, and they will come” was a strategy – and it was short-lived. The need to have a quantifiable ROI as a means for funding approval became paramount in the early 2000s as a checkpoint of sorts to keep technological expenditures at bay, but also to keep the complexities of technology away from those who needed to approve funding. The language of software usefulness moved from bits and bytes to total cost of ownership (TCO) and ROI.
What is a Return-on-Investment?
Currently, there isn’t an organization that doesn’t have the ROI process incorporated into every procurement workflow. Most change management and transformation discussions can’t start without someone sharpening their pencil and proposing a return-on-investment. I can only surmise the amount of time and money consumed on creating ROI proposals, yet how much time is spent verifying if the ROI was met? Are we even looking in the right places for savings and gains? As we unfold this discussion, I want to be sure that we are all on the same page. A return-on-investment proposal is a hypothetical calculation we create to obtain funding. This calculation, itself, is not the ROI.
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January-March 2017 • Workforce Solutions Review • www.ihrim.org
Return-on-Investment is a Lagging Indicator
McChesney, Covey, and Huling (2012) assert that one of the biggest reasons why we don’t achieve a goal is that we don’t understand or manage the differences between lagging and leading indicators. These are rather self-explanatory; lagging indicators are those indicators that suggest whether or not you have achieved your goal, while leading indicators suggests whether you are on the right path to achieving your goals. Therefore, ROI is a lagging indicator. However, are we monitoring our leading indicators, which tell us if we are on the path to success? For example, let’s take a goal that many of us are very familiar with: losing weight. Given the context here, the weight on the scale would be the lagging indicator; it reflects what you did before weighing yourself. However, the question for us is: What are our leading indicators, the activities that tell us what we did before we weighed ourselves? An example of a leading indicator might be spending 30 minutes (measured by a timer) on a treadmill, on an empty stomach (nothing to eat prior) at our optimal heart target zone (measured by a heart monitor). Doing that daily (along with a sensible diet), one would expect to lose weight as reported by your scale (lagging indicator). Perhaps the ROI you are looking to achieve comes from implementing a new solution for your recruiting process, your lagging indicator. What are your leading indicators? For example, it might be reducing the time it takes to process an offer that is the opportunity for improvement. If it takes four hours at $50 per hour, that portion of the process might be $200 for every new hire. What happens if implementing a new system reduces that time to two hours, only costing us