Seven Steps to Prevent a Negative ROI

Patti P. Phillips, Ph.D., Chief Executive Officer ROI Institute, Inc.
Jack J. Phillips, Ph.D., Chairman, ROI Institute, Inc. 

One of the biggest barriers to ROI implementation is the fear of a negative ROI. No one wants the disappointment, or perhaps even the horror, of having a talent development program that delivered less monetary value than it costs. The traditional perception is that the sponsors of the program may want to discontinue it. In reality, sponsors may continue to support the program, particularly if you take a proactive stance and not wait to be asked for the ROI data. And don’t forget the power of a negative ROI, the lessons learned. The reasons for the negative ROI are usually in front of you. With the right changes, the ROI could be positive.

Still, there is a serious need to try to avoid a negative ROI in the first place. In fact, there are some easy steps you can take to make sure you don’t have a negative ROI. Essentially, this means you should design for positive results.

Let’s review what causes a negative ROI. The ROI is calculated from having the impact of a talent development program converted to money (the monetary benefits) and compared to the program cost. Quickly, it is the monetary benefits minus the cost, divided by costs, multiplied by 100 that yields the ROI. In formula form it isA negative ROI can be caused by having a less than satisfactory impact. When that is the case, the challenge is to improve the impact, and that is almost always possible. In some cases, however, there is a negative ROI because the program is too expensive, (i.e. the costs are too high).

Let’s examine seven steps you can take to ensure a positive ROI, almost every time.

1. Start with the business measure. Don’t start with a learning need or behavior need. Start with the business need, an impact measure in the organizational records. If you start with a business measure, you can end with a business measure.
2. Select the best solution. Make sure the talent development solution will influence the impact measure. On rare occasions, the wrong solution, or at least not the most optimal solution, is implemented. If that is the case, the program won’t deliver a positive ROI.
3. Expect the success you need. Define the ultimate success of the program as business impact and develop objectives for reaction, learning, application, and impact. Provide these objectives to all stakeholders, including the participants.
4. Have the right people involved. This is usually not a problem, but we are still surprised when we ask this question in a follow-up survey, “Did you have an opportunity to use the skills in this program?” and a significant number of people check no. This indicates they may be in the wrong assignment for this program. If 20 percent or more of your participants are not in a position to actually use the skills, then this is a serious blow to the program, which may result in a negative ROI.
5. Design for the impact and ROI. The application and impact objectives are provided to all stakeholders, designers, and developers who use the objectives to develop tools, templates, and processes to deliver business impact results. Facilitators teach for positive impact. Managers of participants influence application and impact. The key is to make sure the team delivers the impact that is needed.
6. Look for early signs of disappointment. With a negative ROI, usually there are signs with reaction when the participants don’t see the value, or if there is no significant learning generated through the process. Also, if the participants are not using what they’ve learned quickly, it may be time to make an adjustment to make sure there is impact.
7. Examine the costs of the program. Expensive programs will demand more impact to have a positive ROI. Virtual reality, which is a very expensive learning process, must produce more learning, which causes more application and impact to have a positive ROI. We are not suggesting that cheaper is better, because a more expensive program may deliver a higher ROI than a less expensive program. The key is to avoid unnecessary costs.

Together these steps can make a difference in the positive or negative ROI. Following these steps almost guarantees a positive ROI. Let us know if you would like to see a case study with a positive ROI (or a negative ROI).