Re: KM ROI #question #value


John Antill
 

Instead of ROI you can say a cost avoidance. It shows a direct link to the bottom line. Just a different way of saying something, I saved 8 hours per person on a project or There was a 8 hour cost avoidance per person on the project. avoidance speaks higher.
ROI is if I bought a new thingamajig and was trying to recoup costs. Avoidance means I got to save that money.
John Antill
MCKM CKS IA KT
MLS KM Student
256-541-1229


On Tue, Nov 10, 2020 at 12:39 PM Frank Guerino via groups.io <frank.guerino=if4it.com@groups.io> wrote:

Hi Stephen,

 

You wrote: “The problem with the idea of going back and checking ROI against actual achievement is that ROI is simply a flawed metric in low-frequency, high-variability situations. It's not a matter of how "mature" you are, there will never be enough data -- measured directly.”

 

Agreed.  This is the plight of measuring ROI.  If your data is good, you can get to very good ROI assessments.  If it’s not, you’re at the other end of the spectrum, where you use (mostly educated but still) SWAGs.  The quality of the data you can pump back into your iterative feedback loop dictates the quality of your final calculations (as is the case with any similar algorithm).

 

My Best,


Frank

--

Frank Guerino, Principal Managing Partner

The International Foundation for Information Technology (IF4IT)
http://www.if4it.com
1.908.294.5191 (M)

Guerino1_Skype (S)

 

 

From: <main@SIKM.groups.io> on behalf of Stephen Bounds <km@...>
Reply-To: <main@SIKM.groups.io>
Date: Friday, November 6, 2020 at 9:16 PM
To: <main@SIKM.groups.io>
Subject: Re: [SIKM] KM ROI #question

 

Hi Frank,

The problem with the idea of going back and checking ROI against actual achievement is that ROI is simply a flawed metric in low-frequency, high-variability situations. It's not a matter of how "mature" you are, there will never be enough data -- measured directly. At best, solutions will be interpreted as "successful" or "failed" because of survivorship bias, not because of any inherent soundness to the decisions being taken.

A simple scenario: A company identifies that poor processes are sometimes leading to litigation and multi-million dollar payouts. They put in place a you-beaut technology which promises to improve these processes.

The very next year they lose another major suit in court again. "This is rubbish," the executives decide, and the project is canned. Now under the hood their risk has actually decreased 90% -- in reality, it was the best possible thing to do -- but because of that one high-value realisation of risk early, the ROI looks terrible.

As the frequency of events goes up, the more likely you are to establish a cluster of outcomes that can you can use to actively manage your organisation and determine whether process improvements are working. This is necessarily less certain than directly monitoring and adjusting to the results of a high volume of outcomes, but if this is not possible your best bet is to:

  • seek a high-volume metric that strongly correlates with high-value risk outcomes (caveat caveat, Hawthorne effect etc)
  • estimate an RROI on options to change that metric in a positive way

If even this isn't possible in a cost-effective way, the most rational choice of action is to simply ignore that the risk exists. Which describes more small businesses than you might think 😊

Cheers,
Stephen.


====================================
Stephen Bounds
Executive, Information Management
Cordelta
E: stephen.bounds@...
M: 0401 829 096
====================================

On 7/11/2020 3:16 am, Frank Guerino wrote:

Hi Stephen,

 

You wrote: “Any time you are seeking to implement an intangible benefit, or at least a strategy which will have an impact one degree or more away from a direct financial return (this mostly, but not always equates to marketing and/or brand reputation)”

 

  1. I agree (more so with brand recognition/reputation than marketing, such as in the case of direct marketing, where such investments can still be correlated with impacts on sales revenue). 

 

Re: #1: Agreed.  DR is a very strong example.  However, even things like DR often still can and do get clearly written into bottom line expenses (deductibles) that can be measured against revenues for overall profits and ROIs.  DR ROI can be measured against time to recover, costs to recover, lost revenue for time down, etc., and they often are.

 

Re: #2: Saying that such items are “fatally” flawed may be a bit dramatic but I get your point.  The reality is that, where accurate measuring is not achievable, honest and competent people make their assessments based on educated guesses that they can often explain.

 

In short, I think that we agree on the premise that there is a science to ROI math that often bleeds into an art which drives how we come up with some of the numbers which we plug into our math.  In the cases where measurements cannot be accurate, educated guesses and even SWAGs often get reviewed and adjusted for improvements.   As I stated in my response to Matt, in the U.S. the key is to be consistent, leverage independent auditors (or other competent reviewers) to help stay within the guidelines of critical constraints set by your internal organizations like compliance or your external organizations like the U.S.’s IRS.

 

In the case of measurement against revenue generation, ROI is a live and constantly changing metric so there is constant oversight and re-evaluation.  In the case of DR, we often see the reality that very few organizations go back and measure the accuracy of their initial investments against their real costs and their down times & recovery times of their disasters because disasters are few and far between.  Only the most advanced organizations seem to.  Those that are not so mature simply suck up the costs of recovering and somehow role those costs into bottom line expenses (even if not clear as to why).

 

In the end, even “maturity” is a function of ROI.

 

My Best,

 

Frank

--

Frank Guerino, Principal Managing Partner

The International Foundation for Information Technology (IF4IT)
http://www.if4it.com
1.908.294.5191 (M)

Guerino1_Skype (S)

 

 

From: <main@SIKM.groups.io> on behalf of Stephen Bounds <km@...>
Reply-To: <main@SIKM.groups.io>
Date: Thursday, November 5, 2020 at 1:07 AM
To: <main@SIKM.groups.io>
Subject: Re: [SIKM] KM ROI #question

 

Hi Frank,

As Matt notes, all of these measures translate to "money" anyway. It's one of the key strengths and weaknesses of ROI.

Any time you are seeking to implement an intangible benefit, or at least a strategy which will have an impact one degree or more away from a direct financial return (this mostly, but not always equates to marketing and/or brand reputation), I am not a fan of ROI.

There are two reasons for this:

  1. Non-direct interventions will always have a range of financial impacts due to uncertainty. A sound initiative might have little impact on your bottom line one quarter and an outsized return in another (eg think disaster preparedness).

    In these scenarios, it is more productive to talk about RROI (= relative return on investment). This allows you to rank the relative impacts of various initiatives on things the company does value, which allows a quantifiable, challengable evaluation of why a particular strategy is the correct one without promising $X return for a particular quarter.
  2.  When you try and use ROI calculations for a non-ROI measure, too many people fall back on "X minutes saved * Y transactions a year = $Z BILLION saved in staff costs". 99% of the time, this is a fatally flawed approach due to the non-harvestable savings. You need to find a better, tangible proxy measure to target (eg # of complaints processed).

PS Patrick - Your Weick quote is so spot on in relation to middle management in any large corporation or government agency, where they are too far down to have major strategic influence, but too high up to have an operational role for day-to-day productivity.

Cheers,
Stephen.

====================================
Stephen Bounds
Executive, Information Management
Cordelta
E: stephen.bounds@...
M: 0401 829 096
====================================

 

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