A Framework for ROI Validation

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Companies spend millions each year to invest in initiatives to enhance their business. They are diligent in the preparation of a business case to justify the need. A committee reviews the business case before the requested fund is granted. Upon implementation, there is little effort spent on monitoring how the new solution performs or validating the return on investment (ROI.)

There are three reasons for the lack of follow through with ROI validation:

1.       Lack of a formal requirement to prove the ROI. Despite the prudent process to justify an investment, most companies don’t have an explicit requirement on tracking the performance of the solution. An anecdotal approach is often used. Unfortunately, it is not definitive enough.

2.       No one is held accountable. When the project manager hands over the solution to the business, her role comes to a conclusion. One might think that the transfer of ownership to the business would imply accountability, and hence, the responsibility for monitoring the solution’s performance. Without an assignment of the responsibility, no one takes ownership.

3.       Absence of a monitoring framework. A monitoring framework identifies what to monitor and how to do it. When there is little clarity on what is needed, the priority for measuring the benefits realized gets bumped.

In order to drive accountability and set up a framework to validate the return on investment, there are several things you could do.

·         Formalize the requirement. It is an essential business practice to verify that resources are well spent. By establishing an explicit requirement on results monitoring, everyone pays more attention. This drives focus on the right priorities, proper solution design, and effective decision-making.

·         Develop a monitoring model. The monitoring model uses relevant key performance indicators to capture the improvements. To do so, a solid understanding of the issues to be tackled is needed to develop the appropriate measures to track improvements. Ideally, the baseline results for the status quo are available for comparison purposes.

·         Incorporate the needed capabilities. Measurement becomes easier when the tool and capability are in place. During the solution design phase, look for opportunities to incorporate the capability in the solution. The additional effort might not be as demanding as one might think. Manual tracking is the last resort.

·         Designate an owner for the results. This crucial step drives home the significance of ROI validation. With a designated owner, there would be active interest in honing the deployment of the solution which leads to results optimization.

When there is inadequate focus on ROI validation, it is difficult to discern whether an investment fulfils the needs of the business or the solution approach is appropriate. In fact, a lack of benefits verification could camouflage problems. The business risks sinking more resources into a sub-optimal solution.

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