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

1. ROI Survival Guide:
Making Dollar & Sense
From Your OD Programs
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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
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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
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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
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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
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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
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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
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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
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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
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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
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11. Knowing What to Measure
Data Collection
Determine
Determine
+
Determine
Determine Success
Success
Needs
Needs Criteria
Criteria
Asking
Questions
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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?)*
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13. Ask the Right Questions
Peeling the Onion
Why?
Why?
Why?
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14. Knowing How to Measure
Analysis
Quantify
Quantify Determine
Success
Success Valuation
Criteria
Criteria
Tangible Dollar
vs. Valuation
Intangible
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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)
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16. Intangible vs. Tangible
Intangible Tangible
Tangible Value Elements
Cost Savings + Revenue
Increases
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17. Tangible =
Financial (Monetized) Value
Revenues
Cost Revenues
Savings Tangible
Cost
Intangible Savings
Intangible
Current New
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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
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19. Tangible vs. Intangible
Performance Management
Increased productivity
Increased retention
Clearly defined goals
Increased revenues
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20. Tangible vs. Intangible
Culture Change
Increased competitiveness
Increased efficiencies
Reduced attrition
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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”)
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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?
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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
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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
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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%
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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
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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
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28. Case Study:
ROI Calculations
Gross Cost/Benefit Percentage: 433%
Net Cost/Benefit Percentage: 333%
Break Even Point: 2.75 months
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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
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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%
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31. Case Study:
Succession Planning
Additional financial justifications:
% increase in costs: 45%
Internal development cost/profile: $9,000
External development cost/profile: $5,000
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32. Post-Development
+ Success Tangible/ Dollar
Needs Success Dollar
Needs Criteria Intangible Valuation
Criteria Valuation
Benefits
Verify
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33. ©Millennium Learning, Inc. All rights reserved. Proprietary and Confidential. Unauthorized use
prohibited.
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34. Thank You!
Julia Geisman
Millennium Learning, Inc.
617.639.0306
julia.geisman@millenniumlearning.com
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