Return on investment (ROI) is perhaps the single most important metric for every organization or government agency to consistently measure.
While many national defense or security agencies might measure total ROI of the whole organization, not many measure or track quantifiable results when it comes to their process improvement projects. If you’re not measuring your results, then you don’t know whether your new process is better than the one you started with. Without tracking results, your improvements are blind – and not justifiable to superiors.
Instead, you should think of every project, especially process improvement projects, in terms of return on investment or quantifiable results. With a calculable ROI, you clearly communicate your agency’s overall value to the larger organization, in addition to the value of your individual improvement projects.
Furthermore, you should never hire an operations or process improvement firm that can’t prove the quantifiable results and ROI of their work at your agency.
So, how do you prove the ROI of your process improvement efforts with solid numbers? The following are some principles and practices to keep in mind:
Calculating Process Improvement ROI
Calculating value and return from processes is rarely an easy task. The most basic formula for calculating ROI is to add up your expected benefits, subtract any upfront costs or fees and then divide that new number by your total costs. The final percentage is your total ROI.
For national defense and security agencies, it is much harder to define and defend your ROI because costs and benefits aren’t always as clear, particularly when the objective is prevention of an incident. In addition, many agencies prefer not to publicize their savings so that they don’t receive a reduced budget in the following year.
However, every federal agency still needs to measure the quantifiable results of their process improvement projects, even if ROI falls under terms like “measurable value” or “return on fees.”
By far, the simplest way to demonstrate your process improvement ROI is through cost savings. Here are the three ways to calculate quantifiable results within a cost savings framework: