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Show Me the Money

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From IT to HR, from boardroom to shop floor, increased accountability for achieving high-value results for new initiatives is increasing in every organization and department. Now the world's leading experts on ROI distill their years of experience and research into proven step-by-step tools for determining the value of any project before, during, and after implementation. Jack and Patti Phillips even show how to measure and place value on intangible qualities like leadership, creativity, customer loyalty, employee engagement, and more.

Show Me the Money provides a comprehensive system that enables business leaders, analysts, and consultants to make the case for their projects and get buy-in at the beginning, refine them during development, and communicate the ultimate results to all stakeholders once the projects are completed. Easy to read and fortified with case studies, checklists, tips, and tools, Show Me the Money clarifies and resolves the mystery surrounding the allocation of monetary values.

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15 Chapters

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Contents

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Chapter 1 The Value Evolution

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Chapter 1

THE VALUE EVOLUTION

“Show me the money.” There’s nothing new about the statement, especially in business. Organizations of all types want value for their investments. What’s new is the method that organizations can use to get there.

While “showing the money” is the ultimate report of value, organization leaders recognize that value lies in the eye of the beholder; therefore, the method used to show the money must also show the value as perceived by all stakeholders. Just as important, organizations need a methodology that provides data to help improve investment decisions. This book presents an approach that does both: it evaluates the value that organizations receive for investing in programs and projects, and it develops data to improve those programs.

This chapter presents the evolution of value—moving from activityfocused value to the ultimate value, return on investment (ROI). This chapter also describes issues and challenges faced by those seeking a technique to show the money.

 

Chapter 2 The ROI Methodology: A Brief Overview

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Chapter 2

THE ROI METHODOLOGY

A BRIEF OVERVIEW

The Process

The process for showing monetary value, including ROI, is a comprehensive, systematic methodology that includes defining the types of data, conducting an initial analysis, developing objectives, forecasting value (including ROI), using the ROI process model, and implementing and sustaining the process.

This chapter briefly describes the approach necessary to achieve the level of accountability demanded in today’s business climate.

Types of Data

The richness of the ROI methodology is inherent in the types of data monitored during the implementation of a particular project. These data are categorized by levels. Figure 2-1 shows the levels of data and describes their measurement focus. Subsequent chapters provide more detail on each level.

Level 0 represents the input to a project and details the numbers of people and hours, the focus, and the cost of the project. These data represent the activity around a project versus the contribution of the project. Level 0 data represent the scope of the effort, the degree of commitment, and the support for a particular program. For some, this equates to value. However, commitment as defined by expenditures is not evidence that the organization is reaping value.

 

Chapter 3 Project Needs and Objectives: Ensuring Business Alignment

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Chapter 3

PROJECT NEEDS AND OBJECTIVES

ENSURING BUSINESS ALIGNMENT

Chapter 2 provided an overview of the ROI methodology. This chapter presents the first step of the process: defining the initial need and corresponding objectives for a project. This step positions the program or project for success by aligning its intended outcome with the needs of the business. This business alignment is essential if the investment in a project is to reap a return.

Creating Business Alignment

The Purpose of Alignment

Based on approximately two thousand published and unpublished case studies, the number 1 cause of project failure is moving forward without a clearly defined need. The second most common cause of failure is misalignment between the project objectives and business needs.

Projects must begin with a clear focus on the desired outcome. The end must be specified in terms of business needs and business measures so that the outcome—the actual improvement in the measures—and the corresponding ROI are clear. This establishes the expectations throughout the analysis and project design, development, delivery, and implementation stages.

 

Chapter 4 Reaction and Perceived Value

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Chapter 4

REACTION AND PERCEIVED VALUE

Once the initial analysis is completed and the project is positioned for success, implementation occurs. During implementation, feedback is gathered from participants involved in the project. Their reactions and value perceptions with regard to the project provide indications of its potential for success.

This chapter focuses on the measurement of reaction and perceived value. Collecting these data at the beginning of the project corresponds to the first operational phase of the ROI methodology. Participant feedback supplies powerful information to use in making adjustments and measuring success. This chapter outlines the most common approaches to collecting data and explores ways to use the information for maximum value.

Why Measure Reaction and Perceived Value?

It is difficult to imagine a project being conducted without the collection of feedback from those involved in the project, or at least from the sponsor.

Collecting reaction and perceived value data serves several purposes. Participant feedback is critical to understanding how well a project serves the customer and the potential of the project to meet the identified business needs.

 

Chapter 5 Learning and Confidence

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Learning and Confidence • 71

the stock market. Up to 80 percent of the market value of some hightechnology firms is attributed to intellectual capital. This demonstrates the value of measuring learning in projects aimed at improving intellectual capital.

The Learning Organization

In the past two decades, organizations have experienced a rapid transformation of competitive global markets as a result of economic changes. Organizations must learn new ways to serve customers and use innovations and technology to enhance their efficiency, to restructure, to reorganize, and to execute their functions globally. In response to this need for a change in strategy, the concept of the learning organization evolved. This concept requires organizations to use learning proactively in an integrated way and to support growth for individuals, teams, and entire organizations. Peter Senge popularized the learning organization idea, suggesting that an organization capture, share, and use knowledge so that its members can work together to change how the organization responds to challenges.2 Managers must question the old social constructs and practice new ways of thinking.

 

Chapter 6 Application and Implementation

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Chapter 6

APPLICATION AND IMPLEMENTATION

Many projects fail because of breakdowns in implementation. Project team members and participants just don’t do what they should, when they should, at the frequency they should. Measuring application and implementation is critical to understanding the success of project implementation. Without successful implementation, positive business impact will not occur—and no positive return will be achieved.

This chapter explores the most common ways to evaluate the application and implementation of projects, processes, and programs. The possibilities vary from the use of questionnaires to observation, and include such methods as action planning. In addition to describing the techniques to evaluate implementation, this chapter addresses the challenges and benefits of each technique.

Why Measure Application and Implementation?

Measuring application and implementation is absolutely necessary. For some projects, it is the most critical data set because it provides an understanding of the degree to which successful project implementation occurs, and of the barriers and enablers that influence success.

 

Chapter 7 Impact and Consequences

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Chapter 7

IMPACT AND CONSEQUENCES

Most sponsors regard business impact data as the most important data type because of its connection to business success. For many projects, poor performance in business measures (the business need) is what would have initiated the project. Impact evaluation data close the loop by showing a project’s success in meeting the business needs. This chapter examines a variety of business impact measures and the specific processes needed to collect the measures within a project, but first it addresses the reasons why impact data are measured.

Why Measure Business Impact?

Several rationales support the collection of business impact data related to a project.

Higher-Level Data

Following the assumption that higher-level data create more value for key stakeholders, business impact measures offer more valuable data. Impact data are the consequence of the application and implementation of a project. They represent the bottom-line measures positively influenced when a project is successful. For some stakeholders, these are the most valuable data.

 

Chapter 8 Isolation of Project Impact

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Chapter 8

ISOLATION OF PROJECT IMPACT

Reporting improvement in business impact measures is an important step in a project evaluation that leads to the money. Invariably, however, the question comes up (as it should): How much of this improvement was the result of the project? Unfortunately, the answer is rarely given with any degree of accuracy and confidence. Although the change in performance may in fact be linked to the project, other, non–project-related factors may have contributed to the improvement as well. If this issue is not addressed, the results reported will lack credibility. This chapter explores useful techniques for isolating the effects of the project. These techniques have been used in some of the most successful organizations as they attempt to measure the ROI from projects and programs.

Why the Concern over This Issue?

In almost every project, multiple factors influence the business measures targeted by a project. Determining the effect of each factor attributed to the project is imperative. Without this isolation, the project’s success cannot be confirmed; moreover, the effects of the project may be overstated if the change in the business impact measure is attributed entirely to the project. If this issue is ignored, the impact study may be considered invalid and inconclusive. This puts pressure on evaluators and project leaders to demonstrate the actual effects of their projects on business improvement as opposed to other possible factors.

 

Chapter 9 Show Me the Money: Converting Data to Money

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Chapter 9

SHOW ME THE MONEY

CONVERTING DATA TO MONEY

To show the real money, the improvement in business measures that is attributable to the project (after the effects of the project have been isolated) must be converted to monetary values, which are then compared with project costs. This represents the ultimate level in the five-level evaluation framework presented in Chapter 2. This chapter explains how business leaders develop the monetary values used to calculate ROI.

Why Convert Data to Monetary Values?

The need to convert data to monetary amounts is not always clearly understood by project leaders. A project can be shown to be a success just by providing business impact data showing the amount of change directly attributable to the project. For example, a change in quality, cycle time, market share, or customer satisfaction could represent a significant improvement linked directly to a new project. For some projects, this may be sufficient. However, many sponsors require the actual monetary value, and more project leaders are taking this extra step of converting data to monetary values.

 

Chapter 10 The Intangible Measures

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Chapter 10

THE INTANGIBLE MEASURES

Measuring the Hard to Measure and the Hard to Value

Project results include both tangible and intangible measures. Intangible measures are the benefits or detriments directly linked to a project that cannot or should not be converted to monetary values. By definition, and based on the guiding principles of the ROI methodology, an intangible benefit is a measure that is not converted to money (i.e., if a conversion cannot be accomplished with minimum resources and with credibility, it is considered to be an intangible). These measures are often monitored after the project has been completed.

Although not converted to monetary values, they are nonetheless an important part of the evaluation process. This chapter explores the role of intangibles, how to measure them, when to measure them, and how to report them.

The range of intangible measures is almost limitless. This chapter describes just a few common and desired outcomes of projects and programs.

Table 10-1 highlights 30 examples of these measures. Some measures make the list because of the difficulty in measuring them; others because of the difficulty in converting them to money. Others are on the list for both reasons.

 

Chapter 11 Project Costs and Calculating ROI

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Chapter 11

PROJECT COSTS

AND CALCULATING ROI

This chapter explores the costs of projects and the ROI calculation. Specific costs that should be captured are identified along with economical ways in which they can be developed. One of the primary challenges addressed in this chapter is deciding which costs should be captured or estimated. For major projects, some costs are hidden and rarely counted. The conservative philosophy presented here is to account for all costs, direct and indirect. Several checklists and guidelines are included. The monetary values for the benefits of a project are combined with project cost data to calculate the return on investment. This chapter explores the various techniques, processes, and issues involved in calculating and interpreting the ROI.

Why Monitor Costs and Measure ROI?

One of the main reasons for monitoring costs is to create budgets for projects. The initial costs of most projects are usually estimated during the proposal process and are often based on previous projects. The only way to have a clear understanding of costs so that they can be used to determine future projects and future budgets is to track them using different categories, as explained later in this chapter.

 

Chapter 12 The Business Case: Forecasting Value, Including ROI

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Chapter 12

THE BUSINESS CASE

FORECASTING VALUE, INCLUDING ROI

Confusion sometimes exists about when to develop the ROI. The traditional approach, described in previous chapters, is to base ROI calculations on business impact obtained after the project or program is implemented, using business performance measures converted to monetary values. This chapter illustrates that ROI can be calculated at earlier stages—even before the project or program is initiated.

Why Forecast ROI?

Although ROI calculations based on post-project data are the most accurate, sometimes it is important to know the forecast before the project is initiated or before final results are tabulated. Certain critical issues drive the need for a forecast before the project is completed, or even pursued.

Expensive Projects

In addition to reducing uncertainty, forecasting may be appropriate for costly projects. In these cases, implementation is not practical until the project has been analyzed to determine the potential ROI. For example, if the project involves a significant amount of effort in design, development, and implementation, a client may not want to expend the resources—not even for a pilot test—unless some assurance of a positive ROI can be given.

 

Chapter 13 Results Reporting

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Chapter 13

RESULTS REPORTING

Now that we have the results in hand, what’s next? Should the results be used to modify the project, change the process, demonstrate the contribution, justify new projects, gain additional support, or build goodwill? How should the data be presented? The worst course of action is to do nothing. Achieving results without communicating them is like planting seeds and failing to fertilize and cultivate the seedlings—the yield will be less than optimal. This chapter provides useful information for presenting evaluation data to various audiences in the form of both oral and written reports.

Why the Concern about

Communicating Results?

Communicating results is critical to project success. The results achieved must be conveyed to stakeholders not just at project completion but throughout the duration of the project. Continuous communication maintains the flow of information so that adjustments can be made and all stakeholders are kept up to date on the status of the project.

 

Chapter 14 Implementing and Sustaining ROI

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Chapter 14

IMPLEMENTING AND SUSTAINING ROI

Even the best-designed process, model, or technique is worthless unless it is effectively and efficiently integrated into the organization. Often, resistance to the ROI process arises. Some of this resistance is based on fear and misunderstanding. Some is real, based on actual barriers and obstacles. Although the ROI methodology presented in this book is a step-by-step, methodical, and simplistic procedure, it can fail if it is not integrated properly, fully accepted, and supported by those who must make it work within the organization. This chapter focuses on some of the most effective means of overcoming resistance to implementing the ROI process in an organization.

Why the Concern about Implementing and

Sustaining ROI?

With any new process or change, there is resistance. Resistance may be especially great when implementing a process as complex as ROI. To implement

ROI and sustain it as an important accountability tool, the resistance must be minimized or removed. Successful implementation essentially equates to overcoming resistance. Explained below are four key reasons to have a detailed plan in place to overcome resistance.

 

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