Show Me the Money

SHOW ME THE MONEY Other Books by the Authors Proving the Value of Meetings and Events: How and Why to Measure ROI (with Monica Myhill and James B. McDonough) How to Build a Successful Consulting Practice Investing in Your Human Capital Return on Investment Basics Proving the Value of HR: How and Why to Measure ROI ROI at Work Make Training Evaluation Work The Leadership Scorecard (with Lynn Schmidt) Return on Investment in Training and Performance Improvement Programs, 2nd Edition SHOW ME THE MONEY How to Determine ROI in People, Projects, and Programs Jack J. Phillips PhD Patricia Pulliam Phillips PhD BK BERRETT-KOEHLER PUBLISHERS, INC. San Francisco Show Me the Money Copyright ©2007 by Jack J. Phillips and Patricia Pulliam Phillips All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Permissions Coordinator,” at the address below. Berrett-Koehler Publishers, Inc. 235 Montgomery Street, Suite 650 San Francisco, California 94104-2916 Tel: (415) 288-0260, Fax: (415) 362-2512 www.bkconnection.com Ordering information for print editions Quantity sales. Special discounts are available on quantity purchases by corporations, associations, and others. For details, contact the “Special Sales Department” at the Berrett-Koehler address above. Individual sales. Berrett-Koehler publications are available through most bookstores. They can also be ordered directly from Berrett-Koehler: Tel: (800) 929-2929; Fax: (802) 8647626; www.bkconnection.com Orders for college textbook/course adoption use. Please contact Berrett-Koehler: Tel: (800) 929-2929; Fax: (802) 864-7626. Orders by U.S. trade bookstores and wholesalers. Please contact Ingram Publisher Services, Tel: (800) 509-4887; Fax: (800) 838-1149; E-mail: customer.service@ingram publisherservices.com; or visit www.ingrampublisherservices.com/Ordering for details about electronic ordering. Berrett-Koehler and the BK logo are registered trademarks of Berrett-Koehler Publishers, Inc. Cataloging-in-Publication Data are available from the Library of Congress. First Edition Hardcover print edition ISBN 978-1-57675-399-6 PDF e-book ISBN 978-1-57675-523-5 2007-1 Book Producer: Publication Services, Inc. Production Manager: Susan Yates; Book Designer: Foti Kutil; Production Coordinator: Megan Timian, Copyeditor: Dave Mason and Jennifer Putman; Indexer: Nancy Gerth To: Sarah Ryan, Jessica Ferry, Amanda Ryan, Ashley Crowder, Brandon Crowder The next generation— May you enjoy your life’s work as much as we do. This page intentionally left blank CONTENTS Preface Acknowledgments Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 The Value Evolution The ROI Methodology: A Brief Overview Project Needs and Objectives: Ensuring Business Alignment Reaction and Perceived Value Learning and Confidence Application and Implementation Impact and Consequences Isolation of Project Impact Show Me the Money: Converting Data to Money ix xv 1 13 35 59 69 83 95 117 137 viii • CONTENTS Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Notes Index The Intangible Measures Project Costs and Calculating ROI The Business Case: Forecasting Value, Including ROI Results Reporting Implementing and Sustaining ROI 161 183 199 223 243 259 263 267 About the Authors PREFACE The Need In recent years, we have witnessed change in organizational accountability, especially toward investment in people, programs, projects, and processes. Project sponsors and those who have responsibility for project success have always been concerned about the value of their initiatives. Today this concern translates into financial impact—the actual monetary contribution from a project or program. Although monetary value is becoming a critical concern, it is the comparison of this value with the project costs that captures stakeholders’ attention—and translates into ROI. “Show me the money” is the familiar response from individuals asked to invest (or continue to invest) in organizational efforts. At times, this response is appropriate. At other times, it may be misguided; measures not subject to monetary conversion are also important, if not critical, to most projects. However, excluding the monetary component from a success profile is unacceptable in this age of the “show me” generation. The monetary value is often required before a project is approved. Sometimes, it is needed as the project is being designed and developed. Other times, it is needed after project implementation. This issue is compounded by concern that most projects today fail to live up to expectations. A systematic process is needed that can identify barriers to and enablers of success and can drive organizational improvements. x • PREFACE The challenge lies in doing it—developing the measures of value, including monetary value, when they are needed and presenting them in a way so that stakeholders can use them • • • • Before the project is initiated During design and development, to plan for maximum value During implementation, so that maximum value can be attained During post-analysis, to assess the delivered value against the anticipated value Show Me the Money is a guide that addresses all four scenarios. A Guide to Showing the Money Show Me the Money is a basic guide for anyone involved in implementing major projects—human capital programs, technology implementations, systems integration, new processes, Six Sigma, product design, new policies, and procedures, or any other type of project where significant expenditures of time and money are at stake. Strategies to assist in forecasting the value of the project in advance and in collecting data during and after project implementation are presented. This book uses a results-based approach to project implementation, focusing on a variety of measures that are categorized into six data types: 1. 2. 3. 4. 5. 6. Reaction and Perceived Value Learning and Confidence Application and Implementation Impact and Consequences Return on Investment Intangibles Show Me the Money is a step-by-step guide to identifying, collecting, analyzing, and reporting all six types of data in a consistent manner that leads to credible results. Credibility Is Key Show Me the Money focuses on building a credible process—one that will generate a balanced set of data that are believable, realistic, and accurate, particularly from the viewpoint of sponsors and key stakeholders. More specifically, the methodology presented in this book approaches credibility head-on through the use of PREFACE • xi • • • • • Balanced categories of data A logical, systematic process Guiding principles, a conservative set of standards A proven methodology based on thousands of applications An emphasis on implementing the methodology within an organization to ensure that the process is sustained • A procedure accepted by sponsors, clients, and others who fund projects The book explores the challenges of measuring the hard to measure and placing monetary values on the hard to value. It is a reference that clarifies much of the mystery surrounding the allocation of monetary values. Building on a tremendous amount of experience, application, practice, and research, the book draws on the work of many individuals and organizations, particularly those who have attained the ultimate levels of accountability using the ROI methodology. Developed in an easy-to-read format and fortified with examples and tips, this is an indispensable g