"Show me the money!" is the mantra of the day for many executives as they continue to invest in people, programs, and projects. But what does this really mean? Some stakeholders merely look for the reaction participants have to a program or project; others want evidence of knowledge acquisition; and others, want to know that behaviors are changing and application of knowledge is occurring. But, executives who invest in costly, strategic programs, want more. They want to know how an investment pays off for the organization in terms of improving output, quality, cost, time, customer satisfaction, job satisfaction, work habits, and innovation. They want to know how the improvement compares to the investment itself. They want to know the return on investment (ROI). To calculate ROI, program evaluators identify the improvement in business measures that result from the program, annualize the improvement, convert the improvement measures to money, and compare the annualized monetary value to the program cost. The challenge is in making the argument that the ROI is credible and reliable. This paper describes the framework, model, and guiding principles that make up the ROI Methodology, a systematic approach to developing a credible ROI for your programs and projects.
Measures of return on investment have existed for centuries. One of the classic measures is the benefit-cost ratio (BCR), which is the output of cost-benefit analysis. Cost-benefit analysis is grounded in welfare economics and public finance. Traditional use of cost-benefit analysis includes conducting feasibility studies, allowing organizations to weigh the economic (and social) pros and cons of investing in a public project prior to making the investment. Today, it is frequently used to compare benefits and costs of safety training, management development, ergonomic risk management, work-at-home programs, and other environmental, health, and safety programs. A related metric, ROI, is grounded in business and finance.
