Return On Investment
The calculation we use is the same one used by IBM.
The Return On Investment calculation is this: = (V1-V0)/I
- V0 is the current value of the performance
- V1 is the potential value of the improved performance
- I is the money invested.
Let’s put this into a more realistic situation:
Engineering company XYZ believe that engineers could support more customers a year, an additional 83 customers per engineer. They believe that if various improvements were made i.e. journey planning, time to solution was quicker, and customer service was improved that this will result in each engineer having greater capacity to handle more customers. The belief is also that this would also have additional knock on effects such as; repeat business, new business and increased support contract value. However, there is also a concern that supporting more customers without additional support for an engineer may result in increased absenteeism and attrition.
V0 = the current value of the performance of one engineer is worth £750,000 revenue.
(Engineer on average supports 250 customers per annum and each customer spend £3000 a year for their support contract.)
V1 = the potential value of the performance of one engineer is worth an additional £250,000 (an additional 83 customers) – total value of one engineer could be at £1,000,000 revenue.
I= the money invested currently is £70,000 average salary & expenses + £1000 to receive additional performance support such as training, access to web based performance support content, follow up coaching and support.
So with the additional investment of £1000 we are looking to improve performance to generate an additional £250,000 per engineer.
So the calculation now looks like this:
Return On Investment = (1,000,000 -750,000)/1000 = 250%
In order to create value for a proposed investment, in other words create a business case for your performance improvement initiatives, you need to ask various people various questions.
This is Step one of the IMPACT © approach: Investigate
To get you started we have created a Return on Investment questionnaire for you to complete – click here to download.
The next stage is to understand the V0 – the current Value.
- Who do I need to speak with?
- What figures do I need access to?
- Do the figures tell the whole story?
- What values are less measurable by statistics yet important?
- Do the values compliment the bigger picture?
- Do I fully understand the value?
- Who else do I need to speak with?
The next stage is to understand the V1 – the value of the perceived improvement.
The answers to the above questions will help you with this; however you may feel you have opened a can of worms! Focus on 3 critical areas, link to the big picture and/or current business initiatives.
You also need to understand fully, the blockers to improving performance.
You need to put a figure in £/$ of the current value (V0) and the improved value (V1)
Your aim is to arrive at a figure where through your conversations with stakeholders and your investigation that is believable and achievable with established criteria in place.
The next stage is to position the I – the investment.
With the investigation complete, positioning ‘I ‘ should be fairly straightforward, or you may well have discovered that Performance support is not where the investment is needed, maybe its additional staff or new processes – whatever the outcome, business performance can be improved based on your investigation.
Your Impact Ltd offer tailored support to corporate organisations looking to improve their return on investment and performance; from investigation all the way through to performance support solutions.
Depending on your needs, your industry and your budget we work with you in partnership to deliver a return on investment solution that meets your needs. For a no obligation meeting, a no obligation chat, just leave your contact details and we can arrange a mutually convenient time to talk.
Get in touch for a free consultation.