Thursday, January 14, 2010

Is ROI actually an expression of Inherent Value?

A quick update on the idea of value.: I had a great conversation about this topic with a consultant this week. He talked about how he communicates value to his clients and about specific projects. The approach he described is effective, common, and still not really about value.

He uses one of the common ROI (return on investment) computations to speak to his clients about the value of the project. It’s normal in these conversations to use the word value as an accessible concept to frame what a customer will invest in a solution and what they will get for that investment. To express this in a simple manner it’s:

Monetary Gain from the Benefit – Cost of Investment = Net Return on the Effort

Basically, this kind of calculation shows if the money spent on the project will generate more output than it cost to implement the change. And this is commonly called an expression of value. Unfortunately, value isn’t actually part of the equation. If you “reduce” down the elements, you get two numbers that reflect money spent vs. money earned. So what is really being quantified is the inbound cost of the process and outbound money generated by the process. Even if you take ROI up a level and quantify over all how much money the change will generate in the company over the long term, you’re still a long way from any real meaning of value.

ROI remains a binary equation, even if you put multiple calculations in front of the net return of the entire process. Until we can articulate and experience value apart from cost calculations, we are still buried in the mindset and behaviors that have brought our finances and society to this point.

This brings me back to the reality that to truly survive, thrive, and impact the economic reality of our world, we’ve got develop a relationship with value. This is highlighted by how the non-monetary perspective of value is listed later in the dictionary: “8. import or meaning; force; significance: the value of a word.”

In contrast the definitions of the word cost really hone in on the ways we constantly frame all the realities of being in the world:

1. The price paid to acquire, produce, accomplish or maintain anything.

2. An outlay or expenditure of money, time, labor, trouble, etc.

3. A sacrifice, loss or penalty.

I encourage you to begin framing your time, energy, and passions through the “latent” meaning of value instead of cost.

© Copyright 2009-2010 Heidi Sue Roth. All Rights Reserved.

No comments:

Post a Comment