When impact studies are conducted, the total costs of the program are required to calculate the ROI.

Make it Credible: Capture Costs of the Program

We are going to focus on the 9th step of the ROI Methodology process model, tabulating the cost of the program. We are still at the ‘Make it Credible” phase of our data analysis. Each step in the data analysis phase is focused on how we make the impact data we are reporting credible to the executives. We have looked at the earlier steps of this phase where we isolate the effect of our program, we convert data to monetary values, or we decide not to convert to monetary values. In this module, we are going to cover how to tabulate the costs of the program.

We are still using the same fixed process that we just looked at, and we are using the same set of tools we have been using to make the determination about the credibility of the data that we have collected, we are analyzing, and we are going to report. We first looked at isolating the effect of our program, to answer the question, how do we know the impact we are claiming is the result of our program and not something else. We are converting data to monetary values or we are choosing not to convert it to monetary values after deciding about protecting our credibility. Now, we are going to focus on how we tabulate the costs of the program because executives are very interested in the costs.

When we look at the Business Alignment V Model, we are looking at what is in yellow. We want to know what all the costs are at various levels. What did it cost to change their performance in the workplace? Notice the cost of the initial analysis is included on the left side and on the right side. All the costs of our evaluation are included. We are using a very comprehensive set of cost figures. We want to include every cost. We are dealing with the ROI Methodology Guiding Principle 10 to fully load all the costs when we are calculating the ROI.

Reasons for Developing Cost Data

Here are some reasons why we want to develop those costs:

As mentioned earlier, executives want to see the cost. Costs are one of the high priority items that executives need to see. Our job, when doing our evaluation, is to balance the cost and obtain the most benefits for the expenditure to show a positive return on investment. We want to get all the expenditures, compare different programs, look for efficiencies, and collect data that we could use when we are looking at a future program, and look at alternatives to the proposed program given the budgeting issues. Those are a lot of reasons why we want to capture this cost data. Work with individuals in the organization who can help to do that, so that the cost data are credible.

Issues About Tracking Costs

If we are not going to evaluate ROI or even to the impact level, we still want to monitor costs. Later when executives say, we would like to evaluate to that level, you will have the data to do that regardless of the evaluation level. You do not have to calculate down to the penny when you are reporting costs, but you do want to get close. Working with the finance department in your organization will help you get to the level of precision that the organization is expecting. Do not spend $2 to try to figure out where $.05 went. Use the practical approach of the ROI Methodology by planning upfront, going through each step of the process, and getting all the stakeholders involved. We also want to make sure that we minimize the resources we use to track those costs because those costs will also be added to the cost of our evaluation and our ROI calculation.

Using Estimates

It is okay to use estimates if they come from credible sources. Estimates are used all the time when we are dealing with costs, but we have to be careful when we are reporting costs. If you provide an estimate, make sure that you can explain it. Vet the cost through your finance department and your numbers team. This will save you a lot of grief later. You must give executives a context because if you just report the cost then they're going to come back and say, “That is too expensive. We want you to cut the cost.” They want to know what they are getting in return for those dollars. If you give the counterbalance of what they get in return for those dollars, then present the cost, it may seem reasonable to them. Report the estimates or at least have a plan to report them. These are really important issues that we must be able to address.

ROI Analysis Plan Tabulating Costs

Here we list all the cost categories. We are not listing the costs themselves at this point in time. We are working with the stakeholders to define what categories of costs we must capture. We must make sure to have mechanisms in place to capture those costs as we go forward through the program so that the costs can be tabulated at the very end.

Types of Cost Categories

Anytime we are doing the initial analysis and assessment, we want to include all those costs. If you are evaluating a program that is going to be over the course of a year or two, then you want to prorate the development costs and acquisition costs over that length of the program. The same applies for any hardware or software purchase, any capital expenditures, and your administrative support and overhead. Again, you are going to talk to your finance people to determine how you want to go about doing that. For example, we had a situation not long ago with a chief financial officer of two television networks in South America, and we were talking about this. He was participating in an ROI certification class and we were talking about pro-rating a pilot program. His point was, if you are dealing with a pilot program or using a pilot program to decide if you are going to go forward or not with a program, you include all the costs of that pilot program in your ROI calculation. Had that conversation not occurred, we would have just used a forecast and prorated across the length of the program. You want to have that conversation upfront so when you are reporting your costs to the executives, and the CFO requests those costs, you have already addressed this and received their directions.

If you're using a facility internal to your organization, and it's just a situation where you can reserve the room, even though you may not be paying for it out of your budget, the organization is paying for it, you want to include that cost. If you were renting that room or you had to go out and somebody else came in to rent that room, find out what it costs the organization to have that room available to you. That is going to help drive down the ROI, and it is going to help you to maintain your credibility because you are including costs that most people would not consider including. You also see maintenance and monitoring as a cost. Include the costs of your evaluation and reporting the results of your evaluation. The point is, we want to be as comprehensive as possible and include all the costs. When we are dealing with costs, the adage is, when in doubt, put it in.