Every organization wants to show a good return on investment (ROI)
But what exactly does that mean? After all, ROI can be gauged in many different ways. What gets measured and what is deemed as a success is dependent on both your business and its goals.
For instance, ROI can be measured in terms of increased profits or decreased expenses … or in less tangible ways such as improved operating efficiencies or decreased incidents or injuries.
The Houston Chronicle reminds us that clearly defining your goals and setting measurable key performance indicators (KPIs) is essential to helping your organization increase the return on its improvement initiatives.
We’ll start with the basics:
How to calculate ROI
ROI is a simple calculation expressed as a ratio or percent.
You simply divide your return by the cost of your investment. The formula looks like this:
ROI = (Gain from investment – Cost of investment) / Cost of investment
So how can you improve your organization’s ROI? Harvard Business Review had an interesting approach that’s worth a glance. Here are the basics:
A 3-Step Approach to improving your ROI
- Step 1—Analyze the competition: The Harvard Business review tells us to look to similar companies with like structural characteristics including fixed capital, market concentration and industry growth to see how they’ve achieved success in establishing a positive ROI. After all, companies facing similar challenges and conditions can be a wealth of insight. Start your search with a database like ThomasNet® or Manufacturers News, Inc.® and see what you can find.
- Step 2—Compare and contrast: Once you have your list of parallel companies, separate the high performers from the low ones. Then, determine which factors (product line innovation, quality, working capital, employee compensation, etc.) could be making the difference between the outstanding performers and those that are performing at less than stellar levels.
- Step 3—Identify the most important variables: Lastly, once you’ve identify a variable a potential game changer for your organization, it’s time to employ some tactical changes of your own. Just remember to set a goal that’s both clearly defined and measurable.
Your on your way to improving your company’s ROI
What will it be?
- An improvement to your first-time yield?
- An increase in operating efficiency?