Beth Kanter, Beth's Blog

ROI -- or Return on Investment -- is a pre- and/or post-evaluation process and analysis of three factors: benefits, costs, and value of a specific technology purchase over time. ROI can help your organization avoid a technology purchase that is a huge mistake or avoid not investing in a technology that could return many dividends.

Focus On Value

If you approach ROI as a financial analysis only, you're missing the point. An ROI process focuses on identifying and unpacking the benefits of efficiency and effectiveness and how these support your organization's mission. Some benefits can be easily translated into dollar amounts or cost savings, while others cannot. You might be tempted to ignore the latter -- referred to as "intangible benefits" -- but often these are extremely important to illustrate the quantitative information you include in your case for support.

Simple and Streamlined

While an ROI process will involve some data collection, it should not take you more time to implement than the technology project itself. Many ROI processes go wrong when staff get too obsessed with the data collection.

Remember, data collection should be not be a burden. Avoid excessive surveying or overly complicated spreadsheets. Collect just enough data to support your case. When presenting your case to decision-makers, summarize -- but have additional details at your fingertips if you are asked.

It is Credible

Data collection must be credible. The financial calculations should be clear, concise, understandable, and believable to everyone. You'll need both internal information gathering -- looking at previous year's budgets and actual performance, for example -- as well as outside research. Keep an eye out for published studies from credible sources that provide acceptable benchmarks about efficiency or effectiveness of a particular technology. Gather information from other nonprofits that have implemented similar technology programs.

Look at Work Processes

Often, an ROI process gets down to understanding the details of how staff does their work, the nitty-gritty of task analysis. This micro view, however, should not get bogged down with data collection. The ultimate question you need to answer: How does the technology help staff get their work done or how does it improve our ability to serve clients?

When?

Nonprofits typically conduct an ROI process to help make technology purchase decisions. Nonprofit organizations can also use a ROI process after implementing a small pilot project to determine what the full cost/benefit implications are for a larger project.

It is not necessary to use an ROI process for every single technology purchase your organization may be considering. There are definitely situations that should require it, however, such as expensive, controversial, or high profile investments or in cases where there is a large target audience.

How?

There are four basic ROI building blocks: Benefits, Metrics, Value, and Financial Formulas. When analyzing benefits, look at how the technology enhances programs or improves your services. Don't just focus on staff efficiency through reductions in cost or increased revenue, although those benefits are very important.

Metrics and value are an integral part of the ROI process once you have identified the benefits. Metrics are a unit of measure. Value is the process of quantifying the benefits with a metric. Tangible benefits are those we can easily measure and convert into dollars or time. Intangible measures are the benefits or detriments directly linked to the IT project, which cannot or should not be converted to monetary units, but may still be quantified.

Intangibles may make a difference in the success of the project. These include staff effectiveness, morale, customer satisfaction, business relationships, and others. Some of these are clearly more quantifiable than others, but all are important to consider in a ROI analysis. Intangible measures are often noted in the upfront proposal and tracked as part of project implementation.

After you have identified benefits, metrics, and values, it is time for the financial calculations that answer:

• What is the direct cost of the technology investment?
• What is the value of any expense or staff time savings?
• What is the value of intangible benefits?
• What is the cost of alternatives or not investing?

ROI Story Telling

The ROI process is more than data collection and number crunching. It also consists of an organizational conversation, storytelling, and a written report. If you already have a formal team responsible for IT planning in your organization, this is the ideal group to champion the ROI process. The group should be a balanced mix of technical and non-technical people and represent those who will be impacted by the technology purchase.

A written product will result from your ROI process. It can be an informal memo or a full-blown report, depending on the style and culture of your organization. Remember, a good, credible ROI process incorporates story telling techniques that are designed to sell the value of the project to decision-makers.

Finally, some tips on a successful ROI process:

• Focus on benefits, not features
• Don't ignore intangibles
• Don't present numbers only
• Compare costs of alternatives, cost/benefit, and cost of not doing
• Use pilot projects to get credible numbers
• Streamline data collection
• Get buy-in by using a committee
• Use ROI to drive change, if needed

This article is based on Chapter 3 of NTEN's new book, "Managing Technology to Meet Your Mission" which includes detailed checklists, case studies, and how-to steps for successful ROI projects.

Author's Note: You may be wondering why a social media specialist would have an interest in writing about the traditional ROI processes? While the metrics and ROI techniques for justifying social media are different and evolving and some of the traditional methods simply don't apply, there are principles that can be applied. That's the topic of the book chapter I'm currently writing. So, stay tuned.