ROI

Awesome Music by: Matt West – “Let’s Move”

Show Transcription:

You’ve been staring at your computer screen for so long you can see your presentations, spreadsheets and documents when you close your burning eyes.  These tasks take forever.  You know there’s a better way, but how?  You want to improve your presence in meetings, but how?  Stop working so many hours.  Become the authority for reporting at work.  Fix work problems before they happen.  This is THE Business Intelligence Podcast.   Plug into the business intelligence reporting community at www.getreporthelp.com.  You’re not alone, and yes, you need help.

Every blogger I know loves looking at their stats.  They love looking at how many visitors have checked out their site.  How many unique visitors, how many people have subscribed to their blog.  They love looking at this data and they will stare at it every day, because it’s the one piece of information they have to gauge how well they are doing.  Now, when you look at something like Facebook, for example, what I have noticed with Facebook is it’s really used for people to do personal things – connect with other friends, family members – you know that kind of effort, that kind of involvement.  And, even though I know some businesses and many large companies are invested in putting together a Facebook page, what I have come to realize is that for my business, for getreporthelp.com, I am looking at helping people that are within a business.  Helping them save time and frustration and reduce the amount of effort they have in analyzing data and manipulating data, and that kind of work is not something that you do on your personal time, that’s not something you do on the side, that’s what you do for your job.  When I look at that context of what Facebook is used for, and what my site is designed for, I really don’t see that connection.  When I look at how much effort I put into updating Facebook and updating all that group information and maintaining that, it’s hard for me to see the return on that investment.  So I have decided to actually shut down my group on Facebook.

And now the feature segment.

ROI is an acronym for return on investment.  In simplistic terms you are looking at the return, the amount you get back divided by whatever you put into it.  So return on investment is normally a measurement used with dollars, so you look at the return in terms of dollars and the amount invested in terms of dollars.  But the output of an ROI is a percentage.  And it is that percentage that you use to drive your decision making.  If you think about it, when you do this return on investment, what you are saying is, “I need to know if the amount of effort I am putting into it is worth the return that I’m getting out of it.”  You use this as a metric.  It’s used all over the place.  We use this in our financial metrics.  We use this personally, whether we realize it or not, in our own analyzing of things we are going to do.  Businesses use it, financial institutions use it.  When you say ROI, it just sounds fancy.  It sounds like you’ve put in this financial calculation and you’ve just crunched these numbers and you’ve put all this effort into it when in fact, it’s a percentage.  You take two numbers and you divide them.  Now, what you put into each of these categories can change dramatically and that’s the secret sauce to an ROI.

When you are looking at a return on investment, let’s talk about the return for a second.  A return would be whatever you are getting back.  Now I have mentioned that it would be in terms of dollars but let’s use an example that a business is going to launch a new product.  When they launch this new product they are going to try and figure out what the ROI is.  So, the first question is, “How many of these are we going to sell?”  So that’s a dollar amount.  Now, if you are looking at that as clearly and impartially as possible, you would realize that you don’t want to take the total dollars that this product could potentially make for you as your return because your product has a cost to it.  You spend “X” amount of money putting the product together.  So you can’t just say every dollar that I sell is going to be part of my return.  What you would really want to do is look at the margin.  You would take the total dollars that you had and you would subtract out your costs.  And the difference between those would be your margin.  Even on a return on investment, if someone is just using the straight dollars that they have earned, you realize that they haven’t taken into account the cost there.  That’s not their return, that’s just what they got.  So on the return side you can see there are different ways that people calculate this.  Either they will just take the total amount or they will look at the margin, the difference between there.

Then you look at the investment side of this.  So we have the return divided by the investment.  Now the investment can include all sorts of things.  Simplistically, if we are just talking dollars you would say, well for this product, maybe just the cost of the product – that’s it.  We sell it for $5.00 and our cost for the product is $3.00.  So we’ll use that.  Well, you could do that, but again trying to be fair and impartial about this, your investment is going to be more than just the cost of the product.  Your investment is going to contain the amount of effort that it took to launch that product.  It might have taken six months for three or four product managers to put this thing together, for your IS department to put the infrastructure in place and for sales to get trained up on the product.  All of these are costs, all of these are investments into this product.  So a true ROI that’s trying to be balanced and fair would include all of these tangible and intangible costs in terms of that investment.  It’s very simple to do an ROI, but it can be very complex depending on how fair and balanced you want it to be.

An ROI is a benefit gained divided by the effort used.  That ratio of money gained or lost, whether realized or unrealized, on that investment relative to the amount of money invested.  I mentioned that you use an ROI personally, that you use this all the time whether you realize it or not.  So let me ask you.  Why don’t you get things done that you know you need to get done?  Why is it that you put things off until the last minute?  Why is it that even though your wife or your girlfriend will tell you to do this thing and remind you over and over, you just seem to put it off.  Well, I bet if you really analyzed it and really thought about it it’s because you run this ROI in your mind.  I will give you an example.  I hate mowing the lawn.  It is one of the most frustrating uses of my time.  I will put that off until the very last minute.  It’s not until the neighbors are complaining, until my dog starts disappearing in the backyard because the grass is so high.  It’s only then that I will finally break out the lawnmower and start mowing down that grass because I hate to do it.  And as I look at it I realize why I hate to do it.  It has a negative ROI.  When I think about the return on my investment there, it’s atrocious.  I spend so much time mowing.  I have to pay for gas to mow the lawn.  I have to maintain the lawnmower.  Then I have to go out there and move all of the things out of the yard so that I can mow it.  All of this effort just so that I can mow the grass down.  Now, do I get any benefit from that grass?  No.  What do I do?  I end up throwing it away.  I have tried to recycle some of it in my garden but there’s more grass then there is garden so you end up still having an excess amount of grass.  That is such a frustration in terms of time that I have realized that it’s because of that negative ROI, because there’s no return, I don’t see that return, I don’t benefit from that return on that huge amount of investment –  that’s why I put if off.  If for some reason I was harvesting grass, if I was able to sell it or something like that, then maybe I would be more interested in mowing my lawn.  But for now I see it as a negative ROI and that’s why I hate mowing my lawn.  The ROI is that arithmetic return.  It’s sometimes called a yield.  And remember it’s the return which is subtracted from those costs, divided by those costs.

Now, you might think about this in terms of relationships.  Relationships have an ROI.  Have you ever had friends where you realize that you put forth so much more effort to try and become friends with them or maintain that friendship and you don’t see that reciprocated, you don’t see that coming back?  Those friends you find very frustrating, because you want to hang out with them, you want to do something but it doesn’t seem to work out, they’re always busy or something like that?  Sometimes you need to take that ROI metric and apply it to your relationships and say, “Wait a second.  Am I getting the benefit I am hoping to get from this friendship?  Are they reciprocating that?  When we do something, is it a two way street or is it just a one way?”  Now I realize that this might sound very heartless and I don’t mean it in that context.  What I mean is when you look at your friendships and you find that you are frustrated, you might realize that this internal ROI that you do is the reason why you are frustrated.  Now I would never suggest that we reduce our friendships and our networking and our relationships down to just a pure dollar amount you know, “They bought me lunch and therefore I bought them lunch.”  I am not suggesting that.  What I am suggesting is that you look at the general concept of the ROI and you say “Is there this return on investment?  This amount of time and effort that I put into this?”  When you are frustrated it might be that you are looking at this relationship in terms of that ROI and it’s coming out as a negative ROI.

And now the actionable information you’ve desperately needed.

The vast majority of your business users will never use your business intelligence tools.  That is an unfortunate reality.  But it’s something that you as a business owner, you as a reporting person need to know.  You have got to come to that realization.  The majority of your business users have no interest in tools.  They have interest in the information they get from it, but they have no interest in learning tools.  Now unfortunately most of the BI tools are built and designed for those users who will never use the tool.  This is because we have this myth in our heads that if the tool is simple and straightforward and answers your immediate questions right away then anybody and everybody is going to want to log in and use this tool.  The reality is they don’t.  The majority of your business users are busy doing their jobs and this is seen as something above and beyond their jobs.  You, who actually build reports and generate information for managers and for the business, it’s a little different for you.  But by far, the majority of your business is not that type of person.  You have people in sales.  Their primary job is to sell products.  So the idea of using a tool to find out how much they have sold does not help them.  They need to know how much they sell and they need to know it right before they have a meeting or something like that, but the majority of your salespeople are only interested in getting that information when they need it right away.   They are not interested in learning this new tool, so should you include these users when you are building your tool?  Maybe, maybe not.  I would lean toward the not.  When you look at people that do customer service or finance, they are busy doing their jobs.   The idea of building reports and learning new tools is more of a frustration than it is a benefit to them.  Even if that tool can save them time in the long run you are still going to have an uphill battle trying to convince them to invest the time in building this tool.  Now the solution that I suggest for this is to tier your business users.  We segment our customers externally all the time.  We look at our customers and we say this group of customers is our high yield customers.  This group of customers is our repeat customers.  This group of customers is this, that and whatever.  We slice and dice them, but we don’t do that internally.  And we should.  We should look at our users and we should rate them into categories and into tiers and handle each one of those separately.

Now if we looked at it we could say that those who do reporting – those would be what I call your  “Shadow IS” group.  Now, maybe they are actually in IS where they do this kind of reporting.  Maybe they are in finance where they are generating reports.  The point is, they are the ones handling the reports, they are the ones generating those reports.  And those are the users that you absolutely want to involve in your business intelligence tools.  Now there are “Advanced users” as well and those “Advanced users” are right on the brink.  Sometimes they are interested in learning new information, sometimes they actually build or use reports, but not all the time, it’s not their primary job.  They are interested, but only to a certain level.  Now those you are going to handle differently than you would those that are building reports day in and day out.  Which group of people do you think has more investment in the business intelligence tool?  Which one is going to be using it day in and day out?  Which one do you think is going to give you more information and more feedback so that you can build a better tool?  It’s pretty clear.  Then you have a third group of customers and those are what I call   “Mangers.”  Those are people that have no interest in building reports, they only have interest in getting the results from those reports.  Now they may actually be managers or they may not be.  You can think of this in terms of perhaps a salesperson.  A salesperson’s job is to meet with their clients to sell products.  They are not going to be interested in investing time away from selling products and working with customers to go and learn how to build a tool.  This group of people you will handle very differently.  If we don’t segment our customers internally and treat them separately in terms of how we build our business intelligence tools, you will build a tool that will fail from the beginning.  You will have more users try and get into the tool and be frustrated and you will find that 90% of them will just drop the tool entirely and you will be back to that small group of “Shadow IS” people and maybe a handful of those “Advanced Users” that will be interested in your tool.  Those are the ones that you want to use and invest the time and get the input from.  If you don’t tier these people you will build these tools and you will be frustrated that you spent all of this time and got all of these requirements and they didn’t use it.  Now I went into more detail on this in a blog post.  I would encourage you to check out my website and look up “Segmenting Customers.”   I go into more detail in terms of what kind of reports you would provide to each of these groups and what kind of reports they would need.  And I also provided kind of a quick checklist in terms of how you can segment these customers.  It’s very simple. You ask a couple of questions that I have listed out and you can pretty quickly gauge where these users are in terms of these segments.  And using that segmented customers to build your business intelligence tools is the best practice.

You have been listening to THE Business Intelligence Podcast. Plug into the business intelligence reporting community at www.getreporthelp.com. Go right now to the website. Design reports that amaze your boss and co-workers. Dominate spreadsheet tasks. Get information you can use right now. Go now to www.getreporthelp.com and get a free video “Three Formulas Everyone Should Know.”