ROI is an archaic concept…
Unless you’re a banker, financial advisor, or wealth manager.
“Return” on investment certainly is still very much current when dealing with financial statements. Those in the business of crunching numbers to see an actual “return” of capital will dismiss my wild notion that R.O.I. is D.E.A.D.
My statement is aimed at business owners, executives, and leaders who make daily “go-no go” decisions. They will often try to do the old cost-benefit analysis and use ROI as a factor to make those decisions.
The problem is that “return” must be quantifiable and so many of the decisions all of us make in business and life are more qualitative. Instead of being able to utilize numbers, we must deal in a more nuanced approach.
My suggestion is we all start concentrating more on the concept of VOI.
Value on Investment.
A “return” should evoke a numerical elucidation (e.g., by investing $100,000 into that permanent life insurance policy, I will have increased my retirement fund by 17% in 10 years…).
A “value” conjures up a different feeling. While value can sometimes include quantifiable returns, it more so expresses the more emotional ones:
- Enhanced peace of mind
- Improved confidence in products or people
- Accelerated brand recognition
- Protection of reputation
- Improved mental and physical well-being
- Heightened leadership skills
- Improved time management
- Amplified gratefulness
- Improved life-work balance
To best determine if decisions will hold a high VOI, one must take a different approach to decision-making. Consider this five-step process next time you come across a “go-no go” situation:
Step 1: How Are You Better?
Face it, most business decisions are personal, especially if it’s your own company. Ask yourself, are you being improved in some way?
Is your time burden being reduced? Are you gaining more discretionary time? Will you be happier or more confident? Will your skill be improved, or your behavior changed for the better?
And then add a measure of success question…how will you know?
Business decisions are personal. Just like you should pay yourself first to get the most return, you should start with how a decision will be most valuable to you.
Step 2: How Are Your Employees Better?
If you have employees, then they come into play next. Will they be made safer? Will their morale be improved? Are they likely to stay with the company longer? Will they experience better and more robust benefits? Will their jobs be easier and more fun?
And how will you measure success?
Staffing is today more concerning than I can remember. All my clients in every industry have told me that they are short-staffed and struggling to find people. To that end, it becomes even more crucial to keep the ones you have and to create an environment to recruit and hire.
Step 3: What’s the Impact to the Business?
There is always an impact to the business based on the decision.
For example, outsourcing a wellness consultant for your employees might have a very positive impact on morale, performance, and retention. On the other hand, investing time and resources to create and implement a business continuity plan might have the result of preventing a calamity that would financially or reputationally harm the company.
This type of thought processing isn’t usually rigorous. In fact, it should be simple, especially if taking in feedback from key employees and trusted advisors. The harder part comes in the weighing the VOI.
One of the best ways to measure is by determining just how good or bad an impact might be in relationship to your company and personal objectives. That’s why understanding the metrics of success when it comes to value is so important.
Step 4: When you’re 80% sure, jump!
Everyone has a different process in making decisions. Some people are more impulsive and make quick ones, while others need time to process.
Regardless of how one is wired, the savviest business leaders make quick decisions; usually within a day.
The obstacle many people have is over-thinking. And it can be debilitating to them and the best interest of the employees and company.
One of the problems is too much information. When I was on the school board, I used to ask the administrators to provide me with what I needed to know to make a decision, not everything they knew. The overload of information that isn’t pertinent to a decision can paralyze us. Start by making it simple with the first three steps of this process.
We normally have all the information we need to decide early. And we normally have a strong inclination to move forward but get stuck wanting perfection.
No decision is guaranteed. Gather your information, take in feedback and advice, trust your gut, and make a decision.
My scale is that when you hit an 80% confidence mark, jump. The last 20% is dysfunctional.
One can waste valuable time and effort agonizing over a decision they were going to make anyway. This adds extra stress and loss of time and may reduce the value of impact. There is always a cost to waiting.
Step 5: Full commitment
We’ve all been in situations where someone has decided on an initiative or project, yet the commitment was weak. We’ve seen this most acutely when obstacles or pushback from others happen, which is always going to be the case.
Commitment isn’t blind, but it is patient.
There is a necessity for flexibility, revisions, feedback, and modification. Setting those qualitative measurements to determine if value is being met is a critical piece of the puzzle. All too often if those measurements aren’t in place, one might never know if the VOI is real or not!
ROI is valuable when it comes to finances, but incredibly hard to measure on most of your business decisions. Rather opt for what makes you and your company better.
Put your focus and confidence in a high VOI – Value on Investment.