Choosing projects based on projected ROI is a dangerously simplistic way of running your business.
If you take a look at the actual acronym: “ROI” return on investment, it seems like a perfectly logical way of directing your business activity. After all, who wouldn’t want to invest in the things that bring them the greatest returns?
The unfortunate simplification in action is that “return” is generally taken to mean revenue or cashflow, which is but one of the important aspects of running a business.
The problem here is that while revenue can be easily counted, recorded, multiplied and divided; other intangible dimensions cannot be. How do you quantify “trust”? How do you measure “excitement”?
What would an ROI of 20% on trust actually mean? Because the intangibles cannot easily be typed into Excel, they can’t be utilized on pivot charts, or factored into equations.
And because MBA’s live and die by Excel, anything you can’t count, doesn’t count.
ROI based on revenue or other “quantifiable” metrics prove to be an overly blunt way of looking at the world, missing the nuanced and very real ways that vectors like “image” and “brand” profoundly affect your bottom line. If you only have one “real” data point, you tend to optimize to increase that value.
This starts you off making very poor business decisions. Take, for example, 3rd party advertising on your site. Investment is minimal (just open a few content spaces on your pages), and return could be huge. BINGO, the ROI meter goes off, let’s do this!
Did anyone consider what it might look or feel like to have 3rd party advertising on the site? What type of message does this ROI-driven decision send to our customers and what do they think about it?
If you lined up a row of junior MBA’s and really forced them to “prove” it to you, their minds would ultimately jump to questionnaires, surveys, and satisfaction reports. Scratching at the walls to come up with NUMBERS they can give you, they’ll throw out all sort of tests and questions they can ask. Because they want to fit it into their Excel spreadsheet.
And this all takes time and money, and the results can only really be measured after you do something. Not to mention that more than likely, your “results” are indelibly tainted by asking the wrong questions.
so if you can’t measure it, what do you do?
Because so many of the truly important aspects of your business can’t be measured directly, you probably shouldn’t try. Measure the ones you can and then jump in to get a “feel” for the rest. No Excel magic to calculate ROI is going to help you here any more than it would help you learn to surf, or fly a helicopter. You’ve gone through ground school, now it’s your chance to really show what a good pilot you are.