Calculang

the ROI
Pa Phillips, Ph.D. pa@roiinstute.net

ROI Basics

Objecves
Calculate ROI, given monetary

benefits and program costs Convert program benefits to monetary value following five simple steps Identify intangible benefits Determine fully-loaded program costs

What do you know?

What is the rst step in the ROI Methodology?

A. Develop objecves B. Collect data during the program C. Isolate the eects of the program D. Convert data to money

If you want to claim that your program contributed to the improvement in a specic business measure, you must ________.
A. Develop objecves B. Collect data during the program C. Isolate the eects of the program D. Convert data to money

If you want an early indicator of program success, which step in the ROI Methodology must you take?
A. Develop objecves B. Collect data during the program C. Isolate the eects of the program D. Convert data to money

To calculate the numerator of the ROI equaon, you must take which step in the ROI Methodology?
A. Develop objecves B. Collect data during the program C. Isolate the eects of the program D. Convert data to money

If program benets are $750,000 and program costs are $425,000, what is the ROI?
A. 1.76 B. 76% C. 86% D. 176%

The ROI calculaon is simple.

BCR = ROI = Program Benefits Program Costs Net Program Benefits X 100 Program Costs

The ROI calculaon is simple.

BCR = $750,000 $425,000 X 100

$750,000 - $425,000 ROI = $425,000

Levels of Evaluation
0. Inputs and Indicators

Measurement Focus
The input into the project in terms of scope, volume, efficiencies, costs

Typical Measures
Participants, Hours, Costs, Timing

1. Reaction & Perceived Value

Reaction to the project or program, including the perceived value

Relevance, Importance, Usefulness, Appropriateness, Intent to use, Motivation to take action

2. Learning

Learning to use the content and materials, including the confidence to use what was learned Use of content and materials in the work environment, including progress with actual items and implementation The consequences of the use of the content and materials expressed as business impact measures Comparison of monetary benefits from program to program costs

Skills, Knowledge, Capacity, Competencies, Confidence, Contacts Extent of use, Task completion, Frequency of use, Actions completed, Success with use, Barriers to use, Enablers to use Productivity, Revenue, Quality, Time, Efficiency, Customer Satisfaction, Employee Engagement Benefit-Cost Ratio (BCR), ROI%, Payback Period

3. Application & Implementation

4. Business Impact

5. ROI

ROI Methodology
Stage 1 Stage 2

Evaluation Planning

Data Collection

Develop Objectives Of Solution

Develop Evaluation Plans and Baseline Data

Collect Data During Solution Implementation

Collect Data After Solution Implementation

Level 1 Level 2

Level 3 Level 4

Capture Costs Of Solution

Data Analysis
Isolate the Effects of Solution Convert Data to Monetary Value Calculate the Return On Investment

Stage 3

Communicate Results
Generate Impact Study Report

Stage 4

Level 5
Identify Intangibles Measures

Intangible Benefits

Operating Standards
1. Report the complete story 2. Conserve resources 3. Use the most credible sources 4. Choose the most conservative alternatives 5. Isolate the effects of the program 6. No data no improvement 7. Adjust estimates for error 8. Throw out the extreme and unsupported 9. Use first year benefits for short-term programs 10.Include fully-loaded costs 11.Report intangible benefits 12.Communicate results to all stakeholders 14

Inputs Reacon Learning Applicaon

Isolate the Eects of the Program

Impact ROI Intangible Benets

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The ROI calculaon is simple.

BCR = ROI = Program Benefits Program Costs Net Program Benefits X 100 Program Costs

Data are converted to money by:

Converting output to contribution standard value Converting the cost of quality standard value Converting employees time standard value Using historical costs Using internal and external experts Using data from external databases Linking with other measures Using participants estimates Using supervisors and managers estimates Using staff estimates

Example: Cost of One Turnover from External Database

Salary of Middle Manager $70, 000/annually Value of Turnover* 150% of annual Salary Cost of Turnover $105,000
* Value obtained from industry-related study (external data)

Cost of A Sexual Harassment Complaint

$852,000 Cost per complaint = $24,343 35

5 Steps to Convert Impact to Money

Step 1: Focus on a unit of measure Step 2: Determine the value (V) of each unit Step 3: Calculate the change in performance (P) Step 4: Determine the annual amount of the change (AP) Step 5: Calculate the total annual value of the improvement (AP x V)

Example Using Internal Experts

Step 1: One grievance Step 2: V = $6,500 (from Director of nursing and HR Experts) Step 3: P = average of 7 out of 10 grievances prevented per month Step 4: Annual P = Step 5: AP x V =

Example Using Standard Values

Step 1: One sale Step 2: V = 30% prot margin Step 3: P = $20,000 revenue per month Step 4: Annual P = Step 5: AP x V =

Intangible Benefits
Increased job satisfaction Increased organizational commitment Improved teamwork Improved customer service Reduced complaints Reduced conflicts

Intangibles are Identified at Different Time Frames.

Needs Assessment

ROI Analysis Planning

Data Collection

Data Analysis

Tangible vs. Intangible

When should data be converted to money?
1. 2. 3. 4.

Does a value exist? Is there a method? Can you do it with minimum resources? Can you obtain buy-in in two minutes?

The ROI calculaon is simple.

BCR = ROI = Program Benefits Program Costs Net Program Benefits X 100 Program Costs

Fully-Loaded Cost Prole

Assessment Costs (Prorated) Development Costs (Prorated) Program Materials Instructor/Facilitator Costs Facilities Costs Travel/Lodging/Meals Participant Salaries and Benefits Administrative/Overhead Costs Evaluation Costs

Communicate Results
Evaluation without communication is a worthless endeavor.
Keep communication timely Target communication to specific audiences Carefully select communication media Keep communication consistent with past practices Incorporate testimonials from influential individuals Consider the learning functions reputation when developing the over all strategy

ROI Methodology
Stage 1 Stage 2

Evaluation Planning

Data Collection

Develop Objectives Of Solution

Develop Evaluation Plans and Baseline Data

Collect Data During Solution Implementation

Collect Data After Solution Implementation

Level 1 Level 2

Level 3 Level 4

Capture Costs Of Solution

Data Analysis
Isolate the Effects of Solution Convert Data to Monetary Value Calculate the Return On Investment

Stage 3

Communicate Results
Generate Impact Study Report

Stage 4

Level 5
Identify Intangibles Measures

Intangible Benefits

Want to learn more?

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Calculang the ROI

Pa Phillips, Ph.D. pa@roiinstute.net

ROI Basics