Essential Ingredients of a Powerful ROI Analysis

If you are consulting as part of a sales team, the simple truth is that your client isn't going to completely trust you. That's why it is critical to gain their participation and buy-in throughout the analysis. Clients who own the inputs to the analysis, will own the results, as well.

Conducting return on investment (ROI) workshops with your clients is a great way of getting them to consider the expected benefits of a proposed solution. The workshop can involve one or more sessions, and often includes a broad representation of the client's management team. To ensure a great workshop experience, be sure to: use active listening skills, vet any disagreements, and ultimately gain consensus among the participants.

Three steps to building a powerful ROI analysis: 

First, help your client to summarize the current business process and to identify anything hindering better performance. These hindrances are called the business challenges. This is the basis for your work, identifying the specific problems to be solved.

Before clients can quantify expected gains (or losses), they must understand the current cost of the business challenge. This often means the client has to start thinking about cost in a different way (e.g., cost of goods sold, waste in the business process, risk of non-compliance, contributing factors to lower satisfaction, etc.).

Second, the analysis requires an understanding of the proposed solution. Help your clients to visualize, describe, evaluate, and select the solution. Solutions can be new people, processes or technology. Be sure to quantify the estimated results.

Third, a powerful ROI analysis includes an executive summary. Decision makers need to understand the bottom line. A powerful summary always makes it clear "how much the solution is going to cost", and a quantifiable measure of "how much the solution is going to help."

Essential ingredients for a powerful return on investment analysis:

• Cost of keeping the incumbent solution.
• Actual productivity measurement (before)

• Cost of doing things the new way.
• Projected productivity measurement (after)

• High Level Description of Proposed Solution(s).
• Common examples include: 
• new personnel to handle increasing transaction volumes,
• new process automation (applications, databases, etc.),
• new self service technology (IVR or Web), and
• new contact channels (email, social media, sms, etc.).

• Estimated hard benefits (savings) for doing things the new way. 
• Common examples include: 
• improved capacity (production throughput, top line revenue),
• improved efficiency (reduced COGS; Improved EBITDA), 

• Estimated soft benefits for doing things the new way.
• Common examples include: 
• improved customer experience (satisfaction),
• improved containment (self service automation),
• improved escalation ratios (factors that impact NPS),
• improved employee retention rates, 
• improved quality and or accuracy,
• improved retention & loyalty, and
• improved customer engagement capability.

Before presenting the final analysis, it's a good idea to do a quick reality check on the results. If the results are unbelievable, your project won't get past the board of directors or capital committee.

As consultants, we have to keep our need to control and manage in check. Peter Block [author of "Flawless Consulting"], teaches us that our job, as consultants, is to help our clients learn how to think about their decisions, not to make the decisions for them. In short, clients must own the analysis, because they are the ones who must ultimately own the decisions.

Copyright © 2013 | Howard Leary