Measuring the business value of a specific investment — and, thus, measuring ROI — is often easier said than done. It can be confusing with so much information and so many different measurements. Should you look at cost savings, sales, employee productivity, or operational efficiency? Which sales, which employees, and which costs?
To understand the impact (AKA ROI) of one technology investment or project, you have to be able to allocate and measure the relevant costs and benefits. Start by focusing on just the one or two largest benefit categories. Include at least one of these:
- Revenue growth
- Efficiency gains
- Cost avoidance
Get Started On Your Own
Sure, you probably know top-level revenue metrics — like last year’s revenue and how it changed compared to the year before that. But has revenue grown because you took on projects that resulted in that new revenue? Or would revenue have grown as much (or even more) without those efforts?
That may seem like a hard question to answer, and your company probably doesn’t track business value based on revenue gained from each project, though maybe you have the number of additional leads or sales. With an average sale size, you can estimate the total revenue impact.
If you know how many more service calls you now receive, perhaps you can identify improvements that have helped complete them 5 minutes faster at a higher first-call resolution (or potential improvements that can help in the future). With those numbers, you can measure your support team’s efficiency gains. With a little what-if analysis, you can even consider how a new investment might enable those potential benefits.
Forrester’s Total Economic Impact (TEI)
The TEI practice has developed a methodology to measure the estimated business value of a technology solution. So how does the TEI practice at Forrester do this? TEI considers a variety of relevant benefit and cost categories. We then adjust each based on our confidence and variability of an estimate (AKA “risk”). This conservative approach provides a more credible outlook. We also consider the future potential value through the lifecycle of a technology investment based on possible optional steps that could be taken later to unlock even more value.
My TEI colleagues and I are standing by to help out — but you don’t always need to ramp up a large consulting project to get the job done. There’s a lot you can start on your own. Perhaps you’ve been asked to identify the best virtual meeting room solution for your team or want to put some numbers behind your request to your boss for new laptops. You can use this TEI methodology for virtually any proposed project or investment that you and your company may be considering now or in the near future. And if you are a Forrester subscriber, there are several reports and resources available to you. For example, are you thinking of implementing design thinking? We have already outlined how to measure the value of this initiative to help you get started — and for you to show your managers and executives. See below for a link to that report (client access or purchase required).
I think everyone can agree that estimating and knowing the costs and benefits of a proposed project is valuable. But how do you actually go about getting this information? Companies that track a portfolio of key performance indicator (KPI) metrics, with processes for tracking and storing results, probably have a leg up on the rest of us. Perhaps a project to implement a business portfolio management solution can be your first business case.
Stay Tuned For More Suggestions And Guidance
Future posts in this series from me and other TEI consultants will provide more detailed guidance to help you measure your own business value using the TEI framework. We’ll go into more detail about many different types of benefits. We’ll show you how to measure them, what data to look for, and what you might use as a proxy when primary data may not be available. We can help you create your business-case narrative.