0
ROI Survival Guide:

 Making Dollar & Sense
From Your OD Programs


    ©Millennium Learning, Inc. All rights reserved. Pr...
On Measurement…


                       Knowing what to measure and
                        how to measure it makes a
   ...
Purpose of Presentation
To present an easy-to-use method for
establishing a financial return on dollars
spent.
     To con...
ROI:
          A Systems Perspective


                                                                                   ...
A Proactive Approach
                    to ROI

Conducted prior to developing or implementing
an initiative
Establishes q...
A Proactive Approach
                    to ROI

Estimates projected financial return before
development/implementation
Pr...
ROI Challenges
Unclear program objectives
Credibility and source of data used for
calculations
Consistency in quantifying ...
Evaluation Model

      Phillips ROI

                                     Level 5:
                                      ...
Data Collection

      Phillips ROI

                                     Level 5:
                                       ...
The Process

      Data Collection                                                                                        ...
Knowing What to Measure


                                                        Data Collection
                        ...
Ask the Right Questions

     Q 1: What is the business problem?
     (business/performance/workforce management)*
     Q ...
Ask the Right Questions

Peeling the Onion
                                                                         Why?

...
Knowing How to Measure

                                                                      Analysis
                   ...
Defining
           Tangible vs. Intangible
Tangible = Quantifiable business results
(increases in sales, accuracy, custom...
Intangible vs. Tangible


 Intangible                                                                                     ...
Tangible =
Financial (Monetized) Value

                             Revenues

                               Cost        ...
Tangible or Intangible?

 Specific business problem solved (e.g., business
 strategy poorly executed) T
 Retention of inte...
Tangible vs. Intangible

Performance Management
             Increased productivity
             Increased retention
     ...
Tangible vs. Intangible

Culture Change
             Increased competitiveness
             Increased efficiencies
       ...
Monetizing The Value:
                    3 Methods

Gross Cost/Benefit Percentage: Cost/benefit percentage
before subtrac...
Peeling The Onion
    Culture Change

Why change the culture?                                                             ...
Valuation of Results
Culture Change:
Results of “3 Why’s”


    Larger market share $1,000,000 (Revenues )

    Production...
Monetizing The Value:
Gross Cost/Benefit Percentage
Converts
the cost/
benefit ratio
into a                        (Costs ...
Monetizing The Value:
         Net Cost/Benefit Percentage

Percentage
reflecting
the value
minus all
costs
              ...
Monetizing The Value:
       Payback Period (36-48 Mos.)
Number of
months
needed to
                                    Co...
Case Study:
    Succession Planning Data
Data for calculations
 3-year projections
 Direct & indirect succession planning ...
Case Study:
                         ROI Calculations

Gross Cost/Benefit Percentage:                                     ...
Case Study:
                     External vs. Internal
1. Which calculations do you want to use in establishing
   the bus...
Case Study:
                  Succession Planning
Data for internal vs. external costs
  # of profiles to be developed: 20...
Case Study:
                Succession Planning

Additional financial justifications:
  % increase in costs: 45%
  Interna...
Post-Development


                     +              Success                                           Tangible/        ...
©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use
                           ...
Thank You!
                         Julia Geisman
                   Millennium Learning, Inc.
                         61...
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ROI Survival Guide: Making Dollar & Sense From Your OD Programs

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Purpose of the presentation is to:
+ Present an easy-to-use method for
establishing a financial return on dollars
spent.
+ To convert intangible benefits into tangible
benefits
+ To quantify tangible benefits into financial terms
+ To build your skill in running simple, but powerful
financial calculations

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Transcript of "ROI Survival Guide: Making Dollar & Sense From Your OD Programs"

  1. 1. ROI Survival Guide: Making Dollar & Sense From Your OD Programs ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited.
  2. 2. On Measurement… Knowing what to measure and how to measure it makes a complicated world less so. Steven D. Levitt & Stephen J. Dubner Freakonomics ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 1
  3. 3. Purpose of Presentation To present an easy-to-use method for establishing a financial return on dollars spent. To convert intangible benefits into tangible benefits To quantify tangible benefits into financial terms To build your skill in running simple, but powerful financial calculations ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 2
  4. 4. ROI: A Systems Perspective Group Individual Group Relevance Group Productivity Emotional Connection Meeting Business Personal Relevance Needs/Objectives Personal Productivity Organization Solve business problem Support business objectives Increase profitability ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 3
  5. 5. 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 ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 4
  6. 6. A Proactive Approach to ROI Estimates projected financial return before development/implementation Provides post-implementation comparison Transforms OD from an activity to results- driven function ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 5
  7. 7. ROI Challenges Unclear program objectives Credibility and source of data used for calculations Consistency in quantifying and analysis Cost of conducting ROI Usefulness of data Accountability inherent in ROI ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 6
  8. 8. Evaluation Model Phillips ROI Level 5: Financial Impact: Value vs. Cost ROI Level 4: Business Impact: Operational Efficiencies Business Impact Kirkpatrick’s 4 Levels Level 3: Performance Performance Impact: Applied on the Job Level 2: Relevancy Effectiveness: Assessment Evaluation: Feedback Level 1: Reaction ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 7
  9. 9. Data Collection Phillips ROI Level 5: Value of cost savings; increased revenues ROI Level 4: Cost savings tied to business drivers Business Impact Kirkpatrick’s 4 Levels Level 3: Performance Performance reviews Level 2: Relevancy Pre/post metrics Surveys, questionnaires, interviews Level 1: Reaction ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 8
  10. 10. The Process Data Collection Analysis Determine Quantify + Determine Determine Quantify Determine Determine Success Success Determine Needs Success Success Valuation Needs Criteria Criteria Valuation Criteria Criteria Asking Tangible Dollar Questions vs. Valuation Intangible What How To ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 9
  11. 11. Knowing What to Measure Data Collection Determine Determine + Determine Determine Success Success Needs Needs Criteria Criteria Asking Questions ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 10
  12. 12. 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?)* ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 11
  13. 13. Ask the Right Questions Peeling the Onion Why? Why? Why? ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 12
  14. 14. Knowing How to Measure Analysis Quantify Quantify Determine Success Success Valuation Criteria Criteria Tangible Dollar vs. Valuation Intangible ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited.
  15. 15. 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) ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 13
  16. 16. Intangible vs. Tangible Intangible Tangible Tangible Value Elements Cost Savings + Revenue Increases ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 14
  17. 17. Tangible = Financial (Monetized) Value Revenues Cost Revenues Savings Tangible Cost Intangible Savings Intangible Current New ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 15
  18. 18. Tangible or Intangible? Specific business problem solved (e.g., business strategy poorly executed) T Retention of intellectual capital I Culture change T/I Leadership development T/I Succession planning T/I Performance management T/I ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 16
  19. 19. Tangible vs. Intangible Performance Management Increased productivity Increased retention Clearly defined goals Increased revenues ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 17
  20. 20. Tangible vs. Intangible Culture Change Increased competitiveness Increased efficiencies Reduced attrition ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 18
  21. 21. Monetizing The Value: 3 Methods Gross Cost/Benefit Percentage: Cost/benefit percentage before subtracting all costs from the value (e.g., 400%) Net Cost/Benefit Percentage: The percentage that reflects the value minus all costs (e.g., 300% vs. 400%) Payback Period (6-12 months): Indicates the number of months in which the full investment can be recaptured (e.g., 3 months; 4+ months, the program is “free”) ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 19
  22. 22. Peeling The Onion Culture Change Why change the culture? Increased efficiencies; increased competitiveness Why are increased efficiencies Larger market share; & competitiveness important? production cost savings Why is larger market share Higher profitability & production savings? ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 20
  23. 23. Valuation of Results Culture Change: Results of “3 Why’s” Larger market share $1,000,000 (Revenues ) Production cost $1,000,000 (Cost Savings ) reductions Total Value $2,000,000 Cost of Intervention $ 500,000 ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 21
  24. 24. Monetizing The Value: Gross Cost/Benefit Percentage Converts the cost/ benefit ratio into a (Costs + Revenues ) percentage X 100 = __% Cost of Intervention ($1,000,000 + $1,000,000) X 100 = 400% $500,000 ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 22
  25. 25. Monetizing The Value: Net Cost/Benefit Percentage Percentage reflecting the value minus all costs Revenues - Cost Savings X 100 = __% Cost of Intervention ($1,000,000 + $1,000,000) - $500,000 X 100 = 300% $500,000 Gross C/B Percentage: 400% Net C/B Percentage: 300% ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 23
  26. 26. Monetizing The Value: Payback Period (36-48 Mos.) Number of months needed to Cost of Intervention recapture the full = # Payback investment (Costs + Revenues ) per Month Months Total Value = $2,000,000 Cost of Intervention = $500,000 Time Period = 36 Months $500,000 = 9 Months $55,555* *$2,000,000 ÷ 36 = $55,555 ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 24
  27. 27. Case Study: Succession Planning Data Data for calculations 3-year projections Direct & indirect succession planning costs: $3,000,000 Cost savings: $3,500,000 Revenue increases: $6,000,000 Payback period: 36 months ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 25
  28. 28. Case Study: ROI Calculations Gross Cost/Benefit Percentage: 433% Net Cost/Benefit Percentage: 333% Break Even Point: 2.75 months ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 26
  29. 29. Case Study: External vs. Internal 1. Which calculations do you want to use in establishing the business case for hiring external consultants? Click all that apply. a, b 2. What costs do you need to factor into calculating the cost/benefit percentage? d ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 27
  30. 30. Case Study: Succession Planning Data for internal vs. external costs # of profiles to be developed: 20 Current # of internal OD consultants: 3 OD consultant fully loaded hourly rate : $62.50 External consultant fees: $100,000 Internal OD consultant costs: $180,000 Cost savings using externals: $80,000 Cost savings using externals (%): 45% ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 28
  31. 31. Case Study: Succession Planning Additional financial justifications: % increase in costs: 45% Internal development cost/profile: $9,000 External development cost/profile: $5,000 ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 29
  32. 32. Post-Development + Success Tangible/ Dollar Needs Success Dollar Needs Criteria Intangible Valuation Criteria Valuation Benefits Verify ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. 30
  33. 33. ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited. ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited.
  34. 34. Thank You! Julia Geisman Millennium Learning, Inc. 617.639.0306 julia.geisman@millenniumlearning.com ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use prohibited.
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