The Bottom Line on ROI: Measuring the Impact and ROI of - - PowerPoint PPT Presentation

The Bottom Line on ROI: Measuring the Impact and ROI of Organization Development Programs, Projects, and Initiatives

Timothy R. Brock, PhD, CPT, CRP Director of Consulting Services ROI Institute

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Reaction Objectives

The intent is for you to perceive this 90-minute session content as: Relevant to their work Important to their success Immediately applicable

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After completing this session, you should be able to:  Identify the drivers for ROI  Make the business case for ROI  Explain how business alignment is achieved  Identify 7 of the 12 guiding principles  Describe the 10 steps in the ROI Methodology

Learning Objectives

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Within two weeks of this session, you should: Conduct a briefing on ROI. Develop Level 3 and Level 4 objectives for a specific program.

Application Objectives

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There is greater demand to show the value of investments in OD programs, projects, & initiatives at my organization than in the past.

• A. Yes
• B. No
• C. I don’t know

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What is Value?

Exercise: Think about a project or program that you recently implemented. How would you define the value delivered by the program?

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The New Definition of Value

Value Must:  Be balanced, with qualitative and quantitative data  Contain financial and nonfinancial perspectives  Reflect strategic and tactical issues  Satisfy all key stakeholders  Be consistent in collection and analysis  Be grounded in conservative standards  Come from credible sources

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The “Show Me” Evolution

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Shifting Paradigms

Activity Based Results Based

No business need for the program Program linked to specific business needs No assessment of performance issues Assessment of performance effectiveness No specific measurable objectives Specific objectives for behavior and business impact No effort to prepare program participants to achieve results Results expectations communicated to participants No effort to prepare the work environment to support transfer Environment prepared to support transfer No efforts to build partnerships with key managers Partnerships established with key managers & clients No measurement of results or benefit-cost analysis Measurement of results and benefit-cost analysis Planning and reporting is input focused Planning and reporting is outcome focused

Source: Measuring ROI in Healthcare: Tools and Techniques to Measure the Impact and ROI in Healthcare Improvement Projects and Programs, 2013, V. V. Buzachero, J. Phillips, P. P. Phillips, and Z. L. Phillips.

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The Executive View * Measure Current Measure Should Measure Measure Importance

• 1. Inputs

Last year, 78,000 employees received formal learning. 94%

• 2. Efficiency

Formal learning costs $2.15 per hour of learning consumed. 78%

• 3. Reaction

Employees rated our training very high, averaging 4.2 out of 5. 53%

• 4. Learning

92% of participants increased knowledge and skills 32%

• 5. Application

At least 78% of employees are using the skills on the job. 11%

• 6. Impact

Our programs are driving our top 5 business measures in the organization. 8%

• 7. ROI

Five ROI studies were conducted on major programs yielding an average of 68% ROI. 4%

• 8. Awards

Our learning and development program won an award from the Association for Talent Development. 40%

* CEO Survey—Fortune

ne 500 and nd Large Private Company, ROI Institu tute

85% 82% 22% 28% 61% 96% 74% 44% 6 5 8 4 1 2 3 7

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The Measurement Levels Measurement Category 2006 Status 2011 Status Inputs/Indicators

Number of programs, participants, costs, efficiencies

100% 100% 1 Reaction

Reaction and satisfaction with experience, content, value of program

92% 89% 2 Learning

Acquisition of information, knowledge, skills, contacts

48% 59% 3 Application

Use of information, knowledge, skill, insights

11% 34% 4 Impact

Changes in business impact measures such as

• utput, quality, time, costs

8% 21% 5 ROI

Compares monetary benefits to cost of program, project, or initiative

2% 11%

2011 Global Leadership Development Practices Survey Results

N=232; large organizations with leadership development budgets averaging $3 million annually.

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The ROI Methodology

Generates Six Types of Measures:

• Reaction and Planned Action
• Learning
• Application
• Business Impact
• Return on Investment
• Intangible Measures

The ROI Methodology also includes a technique to isolate the effects of the program or solution.

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An Evaluation System Must Have Five Elements

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Level Measurement Focus

• 1. Reaction and Planned

Action Measures participant satisfaction with the program/project and captures planned action

• 2. Learning

Measures changes in knowledge and skills

• 3. Application

Measures changes in on-the-job behavior or actions

• 4. Business Impact

Captures changes in business impact measures

• 5. Return on Investment

Compares monetary benefits to the costs

ROI Framework

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An Evaluation System Must Have Five Elements

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Develop/ Review Objective of Program Develop Evaluation Plans and Baseline Data Collect Data During Program

Implementation

Collect Data After Program

Implementation

Evaluation Planning Data Collection

LEVEL 1: REACTION AND PLANNED ACTION LEVEL 2: LEARNING LEVEL 3: APPLICATION LEVEL 4: BUSINESS IMPACT

The ROI Methodology, Part 1

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Isolate the Effects of Program Convert Data To Monetary Value Calculate the Return On Investment Generate Impact Study Data Analysis Reporting LEVEL 5: ROI Intangible Benefits Capture Costs of Solution Identify Intangible Measures

The ROI Methodology, Part 2

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An Evaluation System Must Have Five Elements

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Guiding Principles, Part 1

1. When conducting a higher-level evaluation, collect data at lower levels. 2. When planning a higher level evaluation, the previous level

• f evaluation is not required to be comprehensive.

3. When collecting and analyzing data, use only the most credible sources. 4. When analyzing data, select the most conservative alternatives for calculations. 5. Use at least one method to isolate the effects of the program or project. 6. If no improvement data are available for a population or from a specific source, assume that no improvement has

• ccurred.

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Guiding Principles, Part 2

7. Adjust estimates of improvements for the potential error of the estimates. 8.

Avoid use of extreme data items and unsupported claims when calculating ROI calculations.

9. Use only the first year of annual benefits in the ROI analysis

• f short-term solutions.
• 10. Fully load all costs of the solution, project, or program

when analyzing ROI.

11. Intangible measures are defined as measures that are purposely not converted to monetary values.

• 12. Communicate the results of the ROI Methodology to

all key stakeholders.

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An Evaluation System Must Have Five Elements

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Example Application Case Studies

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An Evaluation System Must Have Five Elements

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ROI Myths

• ROI is too complex for most users.
• ROI is too expensive, consuming too many

critical resources.

• If senior management does not require ROI,

there is no need to pursue it.

• ROI is a passing fad.
• ROI is too subjective
• ROI is for post analysis only

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The ROI Calculation

Benefit Cost Ratio (BCR) = ROI = X 100 $300,000 Program Costs $300,000 - $200,000 (Program Benefits – Program Costs) $200,000 $200,000 Net Program Benefits Program Costs $100,000 = 1.50:1 = 0.50 X 100% = 50% Program Benefits

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It’s That Easy!

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Develop/ Review Objective of Program Develop Evaluation Plans and Baseline Data Collect Data During Program

Implementation

Collect Data After Program

Implementation

Evaluation Planning Data Collection

LEVEL 1: REACTION AND PLANNED ACTION LEVEL 2: LEARNING LEVEL 3: APPLICATION LEVEL 4: BUSINESS IMPACT

The ROI Methodology, Part 1

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Reaction & Planned Action Learning Application & Implementation Isolate the Effects of the Program Intangible Benefits Impact

Chain of Impact

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Level 0 Input and Indicators

• Number of programs
• Participants
• Hours
• Requests
• Efficiencies
• Costs
• Time to Deliver

Level 1 Reaction and Planned Action

• Relevance*
• Importance*
• Usefulness
• Recommend to Others
• Necessary
• Practical
• Uniqueness
• Concreteness
• New Information*
• Motivation
• Appropriateness
• Intent to Use*

*Correlates with Application

Five Levels of Measurement: Examples

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Level 2 Learning

• Information
• Knowledge
• Understanding
• Capability
• Contacts
• Confidence
• Perceptions
• Skills

Level 3 Application

• Use of Information
• Use of Knowledge
• Use of Skill*
• Frequency of Use*
• Completion of Actions
• Completion of Tasks
• Implementation of Ideas
• Following the Policy
• Use of Procedure
• Use of Regulation
• Success with Application
• Barriers*
• Enablers*

* Essential Measures at this Level

Five Levels of Measurement: Examples

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Level 4 Business Impact Level 5 Return on Investment

• Productivity
• Quality
• Errors
• Incidents
• Re-Work
• Efficiency
• Compliance Discrepancies
• Citizen Complaints
• Costs
• Employee Engagement
• Employee Retention
• Service Delivery
• Cycle Time
• Customer Satisfaction
• ROI (%)
• Benefit/Cost Ratio
• Payback Period

Intangible Measures …. includes a technique to isolate the effects of the communication project.

• Image
• Reputation
• Teamwork
• Stress
• Brand

Five Levels of Measurement: Examples

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Considerations when Evaluating Programs

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Criteria for Selecting Programs for Level 4 and Level 5 Evaluation

Benchmarking*

• Cost of the program

52%

• Importance of program to strategic objectives

50%

• Executive interest in the evaluation

48%

• Visibility of the program

45%

• Linkage of program to operational goals and issues

29%

• Life cycle of the program

14%

• Investment of time required

7%

• Size of target audience

6%

*Survey of Users, N = 235

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The Levels Serve Three Purposes!

Needs Objectives Evaluation

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Program Alignment: The V Model

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Program

Payoff Need Business Need Performance Need Learning Need Preference Need Initial Analysis

Start Here End Here

5 ROI 5 4 Impact 4 3 Application 3 2 Learning 2 1 Reaction 1

Absenteeism is costing $10K/month

• Unexpected absenteeism

is 9% & growing

• Benchmark data is 5%

Discussion between team member & supervisor is not occurring when there is an unplanned absence Deficiency is counseling/ discussion skills

• One day counseling skills

workshop must provide relevant, practical skills

• Facilitator-led
• Participants are supervisors
• Reaction questionnaire at end of workshop
• Planned Actions
• Skills practice during workshop
• Participant assessments
• Facilitator assessments
• Questionnaire – at 3 months
• Action Plan – 6 months
• Monitor absenteeism

records for 6 months

• Action Plan – 6 months

Calculate ROI/BCR Program rated 4 out of 5 on: Need, Relevance, Practicality + Commitment Applies counseling skills to standard in work-like setting Reduce absenteeism to 5% six months after course ROI of 25%

• Apply Action Plans
• Conduct counseling sessions in 95% of

situations when an unexpected absence occurs

Business Alignment & Forecasting

Measurement & Evaluation

ROI Process Model

Needs Objectives Evaluation ROI Objectives Impact Objectives Application Objectives Learning Objectives Reaction Objectives

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Levels of Objectives Measurement Focus

• 0. Inputs and Indicators

The input into the project in terms of scope, volume, efficiencies, costs Participants, hours, costs, timing

• 1. Reaction & Planned

Action 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 Skills, knowledge, capacity, competencies, confidence, contacts

• 3. Application &

Implementation Use of content and materials in the work environment, including progress with actual items and implementation Extent of use, task completion, frequency

• f use, actions completed, success with

use, barriers to use, enablers to use

• 4. Business Impact

The consequences of the use of the content and materials expressed as business impact measures Productivity, revenue, quality, time, efficiency, customer satisfaction, employee engagement

Typical Measures

• 5. ROI

Comparison of monetary benefits from program to program costs Benefit-cost ratio (BCR), ROI%, payback period

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Matching Evaluation Levels with Objectives

1.

Reaction and Planned Action

2.

Learning

3.

Application

4.

Business Impact

5.

Return on Investment

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• 1. Error rates on reports will decrease by 20

percent.

• 1. Error rates on reports will decrease by 20

percent. 4

• 2. Participants will use disciplinary discussion

skills in 90 percent of discussions.

• 2. Participants will use disciplinary discussion

skills in 90 percent of discussions.

• 3. Customer complaints will decrease.
• 3. Customer complaints will decrease.
• 4. Participants will indicate an intention to

implement the new procedure within two months.

• 4. Participants will indicate an intention to

implement the new procedure within two months.

• 5. Participants will score 75 or higher on the

new product quiz.

• 5. Participants will score 75 or higher on the

new product quiz. 3 4 1 2

1 Reaction 2 Learning 3 Application 4 Impact 5 ROI

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• 6. Participants will achieve a post-test score

increase of 30 percent over pretest.

• 6. Participants will achieve a post-test score

increase of 30 percent over pretest.

• 7. Participants will initiate at least three cost

reduction projects within 15 days.

• 7. Participants will initiate at least three cost

reduction projects within 15 days.

• 8. Per project costs will be reduced by $2,000.
• 8. Per project costs will be reduced by $2,000.

2 3 4

• 9. Time to complete a project will decrease.
• 9. Time to complete a project will decrease.

4

• 10. Program implementation will realize a 2:1

benefit-cost ratio within one year.

• 10. Program implementation will realize a 2:1

benefit-cost ratio within one year. 5

1 Reaction 2 Learning 3 Application 4 Impact 5 ROI

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• 11. Program relevance to the job will receive a

score of at least 4.5 out of 5.0.

• 11. Program relevance to the job will receive a

score of at least 4.5 out of 5.0.

• 12. External customer satisfaction index

increase by 25 percent in three months.

• 12. External customer satisfaction index

increase by 25 percent in three months.

• 13. CSRs representatives will handle customer

complaints with the 5-step process in 95% of complaint situations

• 13. CSRs representatives will handle customer

complaints with the 5-step process in 95% of complaint situations

• 14. Canal operators will achieve a simulation

test score average of 75.

• 14. Canal operators will achieve a simulation

test score average of 75.

• 15. Participants will use new customer services

interaction skills with every customer at least 50%

• f the time.
• 15. Participants will use new customer services

interaction skills with every customer at least 50%

• f the time.

1 4 3 2 3

1 Reaction 2 Learning 3 Application 4 Impact 5 ROI

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• 17. Participants will use new software daily as

reflected by an 90% score on an unscheduled audit of use.

• 17. Participants will use new software daily as

reflected by an 90% score on an unscheduled audit of use. 3

• 18. Customer response time will be reduced.
• 18. Customer response time will be reduced.
• 19. Supervisors will conduct a meeting with direct

reports to implement new policy.

• 19. Supervisors will conduct a meeting with direct

reports to implement new policy.

• 20. Employees will submit ideas or suggestions

for improvement in the first year.

• 20. Employees will submit ideas or suggestions

for improvement in the first year. 4 3 3

• 16. Participants will rate the training as a

good investment for the company.

• 16. Participants will rate the training as a

good investment for the company. 1

1 Reaction 2 Learning 3 Application 4 Impact 5 ROI

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This ROI Methodology is a Process Improvement tool Fund, Fix, or Fold

• Just because a program has a negative ROI does not mean the

program is discontinued

• Must understand what happened so we can make changes to

make it positive in the future to drive business value

• Our analysis statistics indicate that 20%-30% of programs have a

negative ROI with 10% of those being discontinued.

• It is rare when ROI is the only factor
• Intangibles can offset a negative ROI
• Ownership, engagement, commitment, communication,

teamwork, cooperation, etc.

• If it can’t produce any business value, then we have a data-driven

case to let it die in peace

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The Power of Objectives

Level 3 and Level 4 Objectives provide:

• Direction to designers and developers
• Guidance to facilitators and coordinators
• Goals for participants
• Satisfaction for program sponsors
• A framework for evaluators

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Data Collection During and After Program

Method Level 1 Level 2 Level 3 Level 4

Surveys

   

Questionnaires

   

Observation

  

Interviews

  

Focus Groups

  

Tests/Quizzes



Demonstrations



Simulations



Action planning/improvement plans

 

Performance contraction

 

Performance monitoring



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Isolate the Effects of Program Convert Data To Monetary Value Calculate the Return On Investment Generate Impact Study Data Analysis Reporting LEVEL 5: ROI Intangible Benefits Capture Costs of Solution Identify Intangible Measures

The ROI Methodology, Part 2

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6.2

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6.3

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Systems/Procedures Changes

Several Factors Contribute to an Improvement After a Program in Conducted

External Factors Management Attention Incentives OD Programs TOTAL IMPROVEMENT AFTER PROGRAM EFFECT OF HR ON IMPROVEMENT

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Isolating the Effects of the Program Benchmarking Data*

* Survey of Users, N = 235

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M1 M2 M1 Program M2 Experimental Control M2 Program M2 Experimental Control M2 Program M2 Experimental Control M2 Control M1 M1

Control Groups

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2% 1% J F M A M J J A S O N D J

1.85% Pre Program Six-Month Average Projected Average — Using Pre Data as a Base 1.45% 0.7% Post Program Six-Month Average CPI Program Conducted

MONTHS

Reject Rate

Trend Line Analysis

5.8

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Monthly increase in credit card accounts: 175 (fact)

Contributing Factors Consensus Impact (%) Average Confidence (%) Sales Training 32% 83% Incentives 41% 87% Management Reinforcement 14% 62% Market Fluctuations 11% 75% Other _________ 2% 91% 100%

5.12 175 x = 56 x = 46.48

(at least)

Participant Estimates

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• Est. Impact

Confidence Adjusted Impact Sales Training 175 32% 56 83% 46.48

Fact: 175 New Credit Card Accounts % Contribution: 32%

• Est. Impact: 56

Uncertainty 17% Margin of Error: +/- 9.52 65.52 56 46.48

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Participant Estimates

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Isolate the Effects of Program Convert Data To Monetary Value Calculate the Return On Investment Generate Impact Study Data Analysis Reporting LEVEL 5: ROI Intangible Benefits Capture Costs of Solution Identify Intangible Measures

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Data Conversion

• Converting output to contribution – standard value
• Converting the cost of quality – standard value
• Converting employee’s 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

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Five Steps to Data Conversion

1. Focus on the unit of measure. 2. Determine the value (V) of the unit of measure. 3. Calculate the change in performance(∆P). 4. Determine the annual change in performance (A∆P). 5. Calculate the annual monetary benefits (A∆P x V).

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1. One grievance 2. V = $6,500 3. ∆P = Prevented 7 out of 10 grievances/month 4. A∆P = 5. A∆P x V =

7 x 12 = 84 84 x $6,500 = $546,000

Five Steps to Data Conversion

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To Convert or Not to Convert

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No Is there a standard value? Yes Is there a method to get there?

Can we get there with minimum resources?

No Yes No No Yes Add to numerator

Leave as Intangible

Can we convince

• ur executives of

credibility in 2 minutes?

Convert data Yes

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Typical Intangible Benefits

 Adaptability  Awards  Brand awareness  Career minded  Caring  Collaboration  Communication  Conflicts  Cooperation  Corporate social responsibility  Creativity  Culture  Customer complaints  Customer response time  Customer satisfaction  Decisiveness

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Typical Intangible Benefits

 Employee complaints  Engagement  Execution  Image  Innovation  Job satisfaction  Leadership  Networking  Organizational climate  Organizational commitment  Partnering  Reputation  Resilience  Stress  Talent  Teamwork

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Isolate the Effects of Program Convert Data To Monetary Value Calculate the Return On Investment Generate Impact Study Data Analysis Reporting LEVEL 5: ROI Intangible Benefits Capture Costs of Solution Identify Intangible Measures

The ROI Methodology, Part 2

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Micro Level Scorecard Macro Level Scorecard

0 Indicators 1 Reaction 2 Learning 3 Application 4 Impact 5 ROI Intangibles 1 2 3 4 1 2 3

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An Evaluation System Must Have Five Elements

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The ROI Methodology

The Bottom Line on ROI: Measuring the Impact and ROI of Organization Development Programs, Projects, and Initiatives

Timothy R. Brock, PhD, CPT, CRP Director of Consulting Services ROI Institute tim@roiinstitute.net

Thank you for attending.

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Please Complete the Survey Before You Leave

Your feedback is greatly appreciated

Thank you!

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ROI Calculation

Net Project Benefits Project Costs ROI = Cost of project $230,000 Benefits of project (1st year) $430,000 ROI = $430,000 - $230,000 $230,000 = 0.87 x 100 = 87%

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Impact Measures

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Output

• Units Produced
• Items Assembled
• Revenue
• Items Sold
• Forms Processed
• Inventory Turnover
• Output Per Hour
• Productivity
• Work Backlog
• Incentive Bonus
• Shipments
• New Accounts Generated

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Cost

• Budget Variances
• Unit Costs
• Cost by Account
• Variable Costs
• Fixed Costs
• Overhead Cost
• Operating Costs
• Number of Cost Reductions
• Project Cost Savings
• Accident Costs
• Sales Expense

Impact Measures

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Time

• Equipment Downtime
• Overtime
• On Time Shipments
• Time to Project Completion
• Processing Time
• Cycle Time
• Supervisory Time
• Training Time
• Repair Time
• Efficiency
• Work Stoppages
• Order Response
• Late Reporting
• Lost Time Days

Impact Measures

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Quality

• Scrap
• Waste
• Rejects
• Error Rates
• Rework
• Shortages
• Product Defects
• Deviation From Standard
• Product Failures
• Inventory Adjustments
• Number of Accidents

Impact Measures

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Customer Service

• Customer Satisfaction

Survey

• Customer Satisfaction

Index

• Customer Complaints
• Customer Comments
• Customer Defection
• Customer Retention

Work Habits

• Absenteeism
• Tardiness
• First Aid Treatments
• Violations of Safety Rules
• Excessive Breaks

Impact Measures

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Work Climate

• Number of Grievances
• Number of Discrimination

Charges

• Employee Complaints
• Job Satisfaction
• Organizational

Commitment

• Employee Turnover
• Reduced Litigation

Impact Measures

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Case Study: The Result

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Four months after implementing an expensive, strategic program, you conduct an impact study and discover from participants involved:

• Reacted very positively to the program and found it to be very

relevant to their work;

• Learned new skills and gained new insights about themselves;
• Applied the skills and insights routinely with their teams, although

they had some difficulty in a few areas;

• Improved several important work unit measures, with some

measures improving as much as 28%;

• Achieved an impressive 105% return on investment; and
• Reported an increase in job satisfaction in the work unit.

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What were the objectives? How many people were involved? What was the scope of analysis? What assumptions were made in the analysis? What specific measures were improved? When were the data collected? What was the data collection plan beyond reaction? How were the needs and measures determined? What assumptions were made in the ROI calculations? How were results isolated from other factors? What is the upfront business connection? How are you tracking costs?

Case Study: The Result