How to calculate ROI of Large system change intervention?

It’s true that companies spend a lot on large system change interventions; this makes it very crucial that companies are able to measure the added value. Companies always need to know if they are getting return on investment; even if we are getting ROI how can we calculate it? One of the reasons that ROI can be particularly difficult to calculate is the different factors that impact an intervention. These factors can be time and quality but are not essentially quantity and money therefore is difficult to put into a basic equation of: output / input equals productivity (output/input = value).

Real problem here is that if we consider that if money as input, output will be money too. However this is not always the case in terms of large system change intervention. So how do we measure an impact which can be expressed as currency value?

Calculating the full financial ROI of Large System interventions has been elusive resulting in undermining the perceived credibility of large system intervention’s strategic importance among key executive leaders. But at the same time companies need to understand – Outcomes of Large System Change interventions are intangible.

Intangible measures are the benefits or detriments directly linked to an intervention that cannot or should not be converted to monetary values. These are becoming crucial to organization’s success. Some of the examples are –

·         Accountability

·         intellectual capital

·         Alliances

·         Innovation and creativity

·         Attention

·         Job satisfaction

·         Loyalty

·         Capability

·         Capacity

·         Organizational commitment

The good news is that more of these intangibles are being considered tangibles. For example, customer satisfaction, few organizations had a clue as to the monetary value of customer satisfaction. Now more firms have taken measures to link customer satisfaction directly to revenues, profits, etc.

So, how to measure the ROI through these intangibles?

1.       Ask stakeholders – Asking stakeholder works the well. Getting feedback from the people who are impacted by Large Scale Change Intervention are even better to get an answer. 5 points Likert’s scale which defines agreement or disagreement of respondents over the desired results.

2.       Linking tangibles to intangibles – Statistics can do wonders here. Once the casual relationship is verified in between these two factors, if there is correlation does exist or not can be checked. Consequently, additional analysis, other empirical evidence, and supporting data could pinpoint the actual causal effect.

3.       Development of Index – This approach is more scientific and reliable. In this method various tangible and intangible data items are combined to make up particular index value. An index is a single score representing some complex factor that is constructed by aggregating the values of several different measures. Intangibles are can be combined with a variety of tangibles to reflect the performance of a company, business unit or function.

How do we convert it to Money?

1.       Focus on unit of measure: Specific unit of which ROI to be measured should be defined precisely e.g Job satisfaction

2.       Determine value of each unit: A classic relationship is the correlation between job satisfaction and employee turnover. Suppose that in a project designed to improve job satisfaction, a value is needed to reflect changes in the job satisfaction index. A predetermined relationship showing the correlation between increases in job satisfaction and reductions in turnover can directly link the two measures. Using standard data or external studies, the cost of turnover can easily be determined as described earlier. Therefore, a change in job satisfaction can be immediately converted to a monetary value, or at least an approximate value.

3.       Calculate the change in performance data: How the value units have changed after the Large Systems Change Interventions can be calculated.

4.       Calculate value of improvement: As we know now approximate value of intangible unit, before and after difference can be calculated and convert it into the money.

This method can give approximate value of different intangible factors associated with Large System Change Intervention.