Measuring Value for ROI
Your investment in this training has cost you both time and money.
When doing x10 thinking we are focused on creating real x10 value. Value that was not there before the x10 intervention but is now. Three ways to measure this x10 value are:
• DOLLARIZATION: The translation of the benefits of x10 thinking into the financial impact in dollars that these strategies may have is what we mean by dollarization. For example, multiplying a specific KPI by ten may be dollarized at $150,000 pa or $450,000 over the next 3 years. Or, a B2B product or an applied research service may decrease maintenance or security costs by 3%. This can be translated into dollars per annum over one, two or three years. Dollarization is a strategic financial skill that can be learned and practised.
• VALUATION: In this context, valuation is an extension of dollarization. After dollarizing, what has been the impact on the valuation of the asset? What is the added x10 value for house improvements or for a business’s future cash flows? In a new venture or start-up situation, what is the potential for success, growth, and, eventually, profits? The degree of difficulty in calculating a valuation can vary but the extra effort gives you an edge which is worth it.
• RETURN: What is the gain from an investment of time, energy or capital? The gain is called the return. There is a continual virtuous cycle between INVESTMENT > RETURN > INVESTMENT. The better the return from a previous investment the better will be the next round of investment. For example, if an investment of $1 million produces a return of $200,000 then (in a 50/50 split) $100,000 can be returned to investors as a dividend, and an extra $100,000 can be re-invested into the growth of the asset eg new plant, equipment, jobs.
This return may also apply to investments of time and energy. If one hour is invested in doing a GBB for a client, the gain from this time and effort can be dollarized. Then it may make sense to do further GBBs for other clients. What will be the return for your business if you do ten GBBs? ‘Doing a GBB’ is the focused effort you make to map out how the return might be up to ten times the investment … or ROI x10.
READ here, or on page 28 of the coursebook …
MEASURE/PROJECTION: Measuring the future is called a projection. Projections are educated guesses and notoriously wrong. Nonetheless, when individuals and CEOs consider an investment they make a deliberate attempt to look to the future return on their investment (ROI).
Looking ahead over the next 36 months what do you feel may be the valuable benefits to you from your investment in this AIXIO training?
In what way might you dollarise this projected ROI?
Would you say your projection is conservative or ambitious?