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Why Ducking ROI Questions Hurts Your Career, and What You Should Do Instead

April 5th, 2010

The Hidden Return on Investment Discussion

There is an untold perspective, amid the blizzard of posts and comments about measurement of, inability to measure, or the non-sensical nature of measuring ROI (return on investment) for projects. When you are asked “what is the ROI of this?” you are often being asking a set of questions—only one of which has anything to do with money, investment or returns.

An effective response to an ROI question requires an understanding of the organizational view of ROI. Absent an awareness of the organizational view, answers may be seen as disingenuous and evasive. Neither attempting to divert a reasonable question, nor attempting to demonstrate that there is no basis for the question are productive strategies, regardless of the language used to disguise the maneuver.

There is a better, more productive path to answering questions about return on investment for any initiative.

Don’t Try to Redefine ROI

There are many fanciful redefinitions of ROI. These are often presented to create a diversion, or to deny the validity of the original question. Typical redefinitions include “return on innovation,” “return on engagement,” “return on insight” and many more, often with the claim that “ROI doesn’t apply to this” and some associated commentary to indicate that any such request indicates that the questioner is uninformed.

These faux-definitions are often linked to complaints that the questioner is “not getting it,” “not listening,” or “not believing” that the initiative is worthwhile. These complaints often indicate a failure of communication rather than a need to redefine ROI, which has been well understood in the business community for years.

While the trigger for this post was an attempt to help people better understand the nature of ROI justification requests, my comments apply to any situation in which you are asked to provide an ROI justification for a project.

“They Don’t Get It” Signals Miscommunication

Years of consulting, coaching and working in complex environments have taught me that when someone tells me “they just don’t get it” after trying to field a request for ROI as part of an initiative justification, there is most often a lack of understanding and discovery on the part of the person complaining as well. In every case I’ve encountered, a brief discussion with the person who asked for an ROI metric quickly reveals that the requestor is similarly miffed at the lack of understanding, depth and professionalism of the person complaining.

If you are countering “what is the ROI of…” with the implication or assertion that the question is inappropriate, nonsensical or doesn’t apply, or trying to redefine the question to some other metric that has no connection to financial return, you are likely not connecting with the true nature of the questions you are being asked. By answering in a circular or evasive way, you signal a failure to understand the nature of the question, and are likely doing a disservice to your own career as well as to the future of your organization.

What Causes This Miscommunication?

The root cause of the miscommunication may be a lack of awareness of the environment, understandable for people who do not routinely field ROI requests. Maybe the root cause is fear that there is no objectively supported justification for the initiative you are proposing—that it’s all got to work because it feels good and seems to be “obviously the right thing to do.”

Maybe the root cause is that, in general, PR and marketing have not been evaluated in the same way as some other “hard-return” parts of today’s businesses, so this type of request for objective justification seems foreign and thus “somehow unfair.” These approaches arise from a fundamental misunderstanding of the organization-level view of business strategy decisions.

People who ask you for the ROI of an initiative assume that you know why they are asking this question, expect you to put yourself in their shoes with your answer, and often do not think it is in their interest to map out the entire surface of the region to explain themselves if you walk in unprepared. If you walk in unaware of the environment, you may find yourself frustrated by answering the wrong questions, in the wrong way, ineffectively at best.

Where are the missed assumptions?

If at the end of an discussion about ROI you feel that the discussion was unfair, or that the person asking question “just didn’t get it,” I ask you to stop, take a deep breath, look in the mirror to be sure you’re calmed down, read below and reflect a little. Is it possible that you might be able to more effectively seek out other perspectives, listen differently, look for new solutions, and challenge your assumptions—before assuming that the other person is the cause of the problem, is misinformed and needs to change?

“What is the ROI?” Carries Several Hidden Questions

Regardless of management style, organizational leaders have one basic job—to increase the organization’s efficiency at converting assets into future organizational value. Assets include everything that “is” the organization, including the people, technologies, real estate, machinery and computers, intellectual property and money, to name a few.

As a leader, you constantly look for ways to improve the organization’s use of assets to maximize its current and future value. There are many tradeoffs, at multiple levels of the organization, and sometimes tucked away in relatively unknown corners.

Someone who asks about the ROI of a proposal is likely to know things about the organization, its status, future and plans of parts of the organization near and far to you. Things that you do not know. When you bring a great idea to someone who asks about the ROI of the initiative, it is not weighed in a vacuum—rather it is weighed against everything else going on in the organization.

For each of these “what does it mean” sections, I’ll present some background and then an “inside voice” statement that illustrates what the requestor may be thinking while listening to your presentation.

A Side Effect of Partial Knowledge

An important side effect of this reality is that you may have, in fact, a great idea that doesn’t make sense in the bigger picture of the organization. For example, let’s pretend you have an idea that will increase value by some measurement (whether financial or not) by 10% in the next year. Let’s add to this scenario that the person who’s asked you about ROI knows about another possibility that he or she believes is likely to increase the organizational value by 50% in the next year.

If you were making the decision, and you knew there were limited resources available, in terms of time, attention, money and other resources, would you divert significant resources from the 50% improvement possibility, in the hopes of achieving the 10% improvement possibility?

The trick, and the thing to always remember in these conversations is that you probably know less about what is going on than the other person. They know things that they cannot, for many reasons, talk about, or at least not yet.

“I am balancing this with other things you don’t know about.”

The person asking you for an ROI estimate may know about another possibility that eclipses yours in terms of estimated value, so a less than positive response may not be a problem with your presentation. It could reflect a tactical reality that there is a high value “larger fish to fry” for the organization at the moment, and a belief that your possibility will distract too much time and effort, and potentially lower the chances of achieving the more important strategic goal.

Risk Calibration: You Are Part of the Measurement

When a request involves organizational change, you can expect the requestor’s risk-calibration radar to go to “high alert.” Organizational change is always risky. It is always hard. It is always expensive. When organizational change is required or is a side-effect of an initiative, one of the first challenges is to evaluate what the benefits and risks are for the change as part of the evaluation process.

What is risk? Risk appears in many different forms. Will your plan work? Will it generate results if it goes as described? These are basic questions, and may be the ones you expect to be front of mind in such a discussion. In many cases, there are some other questions that are more immediate, and in some ways more important, when high risk change is considered. Although it may not be obvious on first encounter, the focus of these sub-text questions is likely to be you!

These risks relate to the likelihood that, if completed, the proposal will generate the results claimed. Some important risks exist long before that point. When asked to buy into an organizational change, the person asking you about ROI will consider whether you seem to be able to lead such a change. Are you a leader? Are you considered to be a leader within the organization? Will you grow into that role if given the chance and more reason to live the role? Can you handle cross-organizational politics and influence-based leadership, in roles where you have no direct authority to make things happen?

“Will this person succeed?”

One way of answering some of these questions is to put you under some pressure, put you in the spotlight to answer a difficult question, to see how you respond. You may think you’re being asked to answer an objective, mathematical question. Yes, part of the answer is the objective response. Another part of the response is how you handle being “the person responsible for justifying the effort.” When you are placed in that role, are you persuasive and solid on your feet, or do you start down the path of evasiveness and diversion? This test may help to assess how the rest of the organization will respond to you as a leader.

Bold Changes Require Massive Buy-In

Change that crosses organizational boundaries results in lots of negotiation. That costs time, energy and often political capital. Figuring out “How easy or hard this will be to sell?” influences whether the concept seems plausible, or whether it’s plausible but requires creation of infrastructure consensus that would enable the initiative to move in full force later on.

“Will key constituencies support this initiative?”

Organizational changes are easiest to sell when they are objectively justified. They can be objectively justified with a large and obvious financial payoff, in the short term, with minimal or moderate time, asset and resource investment. Riskier, more subjective, longer term opportunities can be a good decision, yet they will take dramatically more effort to get organizational adoption, and may be dangerous to the reputation of supporters if they do not work out.

Quick buy-in from a board of directors, investors and other internal and external constituencies can happen when an initiative appears to be likely to generate a big, fast payoff. This is why so many initiatives get a “What’s the ROI?” response on the first pass of discussion. Supporters will always be hopeful that you have data showing a large, positive, objective benefit, to make selling the opportunity easier and more likely to succeed.

Organization-Changing Initiatives Are Long-Term Investments

Like people, organizations generally resist change. An opportunity that requires change is by its very nature a long-term investment. While the initial group of “heat seekers” may adopt changes quickly, while full adoption may take one or more years. It is very risky to start down the path of organizational change if it might be reversed in a matter of months—or even a year or two.

“Are you being objective?”

If a significant ROI discussion is in process, you are asking a supporter to put his or her job on the line. You are asking for something large enough that a significant discussion about ROI is in motion. If your initiative doesn’t work out, going along with your request may compromise their reputation, and potentially career. With that as a backdrop, one of the fundamental questions being asked as a sub-text of “What’s the ROI?” is “Do I trust you enough to risk my reputation and career over this?”

It’s worth taking some time before you encounter an ROI request to ask yourself the related question: “If I were in the requestor’s role, and I knew this decision could alter or damage my career, what would I want to see to feel comfortable that it’s the right thing to do?”

They will see warning flags if they believe you are playing fast and loose with justifications, providing slippery numbers or claiming that numbers don’t matter, or creating “mock-objective” justifications.

A second part of trust is to see whether you have arrived at the conversation with real work completed. You’re asking for big support. Did you walk in with nothing more than “it’s obvious that we have to do this because everyone else is”? Did you do some analysis that would be recognized as meaningful, to try to create answers to the questions that you (were supposed to) know you would be asked when you walked in the door?

Another part of trust involves your ability to understand multiple perspectives. Saying that ROI doesn’t matter is, in some ways, fairly disingenuous. The organization’s job is to increase the value of the organization, using assets as efficiently as possible. ROI is one measure of attainment of this goal, along with softer value metrics.

It may be hard to separate the individual return of this particular investment versus others, and that is a very different answer than “ROI doesn’t apply.” Most people who ask for the ROI of a proposal respond to “ROI doesn’t apply” by placing an internal check in the “clueless” column for the person saying the phrase.

What to do When Objective Measures are Difficult?

Tell the truth.

This is the hardest thing to do.

It will be the most powerful thing you can do when there are no facts at hand.

You don’t have to say “there is no way to know.” One way to handle this is to put together a reasonable guess of the influence, and percent of effect on revenue, of the initiative, and to be clear and up-front that it’s just a guess. With many initiatives in this category, it is also possible to conduct research or a smaller proof of concept project demonstrating real return, to build credibility and a base of data to illustrate the value of the initiative.

Another approach is to open a real discussion, something that might start with “There are a lot of people who think this is a valuable use of resources, across the industry. I realize this is not based on hard data, yet at the same time there are a variety of success stories. What would you need to see to feel comfortable that this is the right thing for us to do?” Another approach might be to ask “Under what conditions would this be a big success for us?”

You may be surprised that the answer to these sorts of questions are, first, positive and thoughtful, and second, that this approach will often result in the start of buy-in to the initiative, because you have now got both people in the discussion involved in thinking about the success requirements.

The Bottom Line: How to Handle “What’s the ROI?” in a way that Helps Your Cause and Your Career

By this point it’s pretty clear that the simple question “What’s the ROI?” carries a lot more weight, and has a lot more content riding on it than simply providing a few numbers. This question is really the entry point for you to demonstrate that you can operate at an executive discussion level, understand the balancing of multiple priorities that occur across the rest of the organization, and have arrived for the discussion with a solid idea of objective metrics that directly answer the question, as well as an ability to discuss the less objective issues surrounding your proposal.

Now that you know what is on the line for this discussion, you will want to invest serious amounts of time, energy and thought to create the best answers possible for each of these key questions (each relates to an “inside voice” question above):

* How does this opportunity relate to other initiatives and projects that might contend for resources, and what makes this option important enough to get limited resources at this time?

* What demonstrates that you are prepared to be involved with an initiative of this scope, and that you would have the support of various constituencies in helping to assure its success?

* What objective, fact-based proof of bottom line returns can you present to help sell the investment to key stakeholders?

* If the returns and effort are more nebulous, how can you provide either a path to that proof, or a way to measure results that would be recognized by financial stakeholders? How can you engage in a real discussion to create a path to progress, using an experimental or proof of concept approach to starting the work?

* Will you put your reputation and job on the line for the initative, in the same fashion that you are asking of the person who asked for an ROI justification?

* How can you demonstrate that you are being objective in your evaluation of the opportunity?

* Why should you be trusted—both in your judgement in proposing the initiative, and in your ability to assist or be single-point responsible for its delivery?

Walk in to your next “What’s the ROI?” discussion prepared this way, and you might be pleasantly surprised with the result.

  1. April 14th, 2010 at 15:19 | #1

    This article from Mashable presents an interesting way to create financial valuation for social media participation: “Facebook Fans Valued at $3.60 Each.” http://ow.ly/1ywo8

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