Part 2: ROI Primer

Each of these scenarios illustrates why ROI thinking is important to a successful nonprofit technology project implementation.

Benefits of using ROI Thinking

  • Measures contribution to organization’s mission
  • Helps you with a system for tracking/project management
  • Helps you understand the cultural change issues that need to be addressed for successful adoption
  • Helps set priorities – helps you decide whether to invest or not
  • Focus on results, not tools and features
  • Helps with forecasting staffing patterns, available resources
  • Alters management and program staff perceptions of technology

Let’s look at the what, when, and how.

What is ROI?

Return on Investment (ROI) was created in the 1920s as a financial measure developed by DuPont and used by Alfred Sloan to make General Motors manageable.
It is a flow chart that calculates business performance taking into account not only whether the company had a profit, but whether that profit was good enough relative to the assets it took to generate it. Over those 80 years, the chart has been polished, refined and so deeply embedded in business thinking.. Wall Street views it as the only legitimate means of measuring business performance.

What it also illustrates is that, originally, ROI was a measure of return on the total investment in the entire business. not the ROI of a technology project, program, or tool or any other isolated aspect of an organization.

What ROI is not?

“It isn’t a method to BS your executive director so you can get a Iphone.” – interviewee from a Legal Services Organization

It isn’t a simplistic financial calculation.

While ROI does include financial calculations, it is one component of a measurement and evaluation process that looks at the benefits, costs, and value of a technology investment over time.

Organizations have moved from technology as an activity or tool to an investment and being results based.

What are the elements of a successful ROI process?

  • Simple
  • Micro versus Macro
  • Economical
  • Credible
  • Accounts for other factors
  • Flexible
  • Hard and soft data
  • Include total costs
  • Uses ROI formulas (BCR or ROI percentage)

When is ROI used?

  • Anticipating the future – commonly used prospectively. Results used to inform a decision about a IT purchase. Typically cost and performance estimates are based on assumptions about the future that may involve considerable uncertainty.

  • Learning from the past – commonly used for a pilot project and based on actual performance data.

You should use ROI approach if …

  • Projects with a long life cycle
  • Project is essential to meeting the organization’s mission and linked to strategic goals
  • Project is very expensive
  • Project is highly visible or controversial
  • Projects that have a large target audience
  • Your executive director asks you … any of these questions .. “How much does it cost?” “Can we afford it?”