Change efforts can involve great investment of both time and money. When I’ve talked to Board members and business leaders about some of our system’s efforts to develop leaders, I have often been asked the question: What is your return on investment? Most times, with various pilot efforts, I’ve been able to point to quantifiable results, such as a succession planning effort that resulted in 80% of participants promoting to executive roles. Sometimes a key measure is sufficient for demonstrating the value of an effort.
However, other times it makes sense to conduct a complete return on investment (ROI) calculation for a cost-intensive change effort or new program. ROI calculation answers the question: Do the monetary benefits exceed the cost?
The ROI calculation is relatively simple and looks like this:
ROI = Program Benefits – Program Costs /Program Costs x 100
When calculating monetary returns on financial investments, ROI can be quite simple. Calculating intangible benefits and returns on the amount of time you invest in a project, or time savings, can be a little trickier.
Several years ago, when we created a home-built solution for training registration, it made sense to quantify ROI, given the amount of time savings that resulted from the effort.
The cost of implementing the new training registration system was $19,000. The time savings translated into a salary savings of $22,126 in just four months of usage. Here’s what the ROI calculation looked like four months after the system was implemented:
ROI = $22,126 (salary savings)-$19,000 (program costs)/19,000 = .16 x 100 = 16%
The following year, costs went down to an annual $2500 maintenance fee and usage skyrocketed, bringing our ROI to well over 200% in time savings. The new system and the change effort demonstrated an exceptional return on investment. This year we are working to roll out a comprehensive learning management system that will replace that home-built training registration system. I’m looking forward to asking the question once more: What’s our return on investment?