August 17, 2008

ROI – Thinking Like a Business Owner

Can you measure it?
ROI Measure Quantify

When investing or making a deal – you have to worry about the return on your investment. ROI defines what you expect from the deal or transaction. Without a good understanding of the expected return – the question becomes – why make the deal?

The same question gets posed when you initiate or embark on a new project. What is the ROI of this project? And usually the concept is sold with subjective articulation of perceived benefits like increased efficiency, more productivity, reduced defects and higher morale. Great but can you prove (factually) the validity of these claims.

If you were an astute businessman you would be always asking – what is the ROI? And no businessman (like a bank) will give you money if you provide subjective benefits. The problem with subjective definition is lack of measurability. And if you can’t measure something – how do you know if you are getting better or worse, getting more or less, deriving value or throwing away money.

An objective ROI analysis for any project or venture forces you to quantify and clarify benefits of this investment. We will reduce defects by x%, we will increase output by x% or we will reduce headcount by x% are all discrete and measurable attributes. You present a more robust and valid business case when you back-up your analysis by facts and objectivity.

Invest the time upfront to understand the ROI of your project. If you cannot quantify the benefits – do you really want to move forward?

(Photo courtesy Flickr/Nick Sayers)

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