Forecasting ROI: Measure What You Manage  
By Merrill C. Anderson, Ph.D.
CEO, Cylient

When it comes to determining the return on investment for HR, organization development and learning initiatives skepticism abounds: “how can you make the connection between people’s behavior and business impact” and “how can you isolate the impact of the initiative from other influencing factors?” are frequent concerns.  And astronomically high ROIs over 300% to 500% or even higher fuel this skepticism even more.

While addressing these concerns is possible with a well planned and executed ROI study, it can also be expensive and time-consuming to do so.  Typically, only the largest, most visible initiatives with the greatest investment justify a full blown ROI study.

There is an alternative to the standard post-program ROI study: forecasting ROI.  Forecasting takes very little time, is inexpensive, scalable and provides a rich, reflective learning experience.  The forecasting process and evaluation has many benefits: the initiative is better aligned with the business, the relationship between business leaders and HR, OD and learning practitioners is reinforced, and possibilities for continuous improvement are opened.

Case Study Example

Let’s explore how forecasting is done with a case study example.  We will draw upon a study published in the OD Journal in May 2007, by Fred Goh, Manager of Learning Strategy at Caterpillar University and myself, Merrill Anderson.

As Caterpillar began to implement a company-wide performance management initiative, it was critical that this initiative demonstrate its value to the business and to do so earlier rather than later.  ROI forecasting was key to demonstrate this value.

Five pilot groups who had just completed the PM workshop were given the standard reflection (“smile sheet”) questionnaire.  Immediately following the completion of these questionnaires, the participants were given a worksheet to complete, which included the ROI forecast questions.  A facilitator helped the participants complete the worksheet in about fifteen minutes, which included questions about:

• What the participants expect to do differently as a result of the PM initiative

• How these new actions will likely impact both intangible benefits (e.g., engagement) and tangible benefits (e.g., productivity)

• The estimated percent improvements that the participants expect, as well as their confidence level in their estimates.

The worksheet data were readily calculated, the fully loaded cost of the initiative determined and the ROI from the initiative was forecast to be in the range of 50% to 90%.  The sources of expected tangible benefits included increased productivity and sales, improved quality and reduced cost.  Credibility and acceptance of the forecast was enhanced by:

• The forecast data came from the participants – managers of business and support functions – not from HR or third-party assessments.  These managers were viewed as highly credible.

• A conservative approach was taken to isolate the expected effects of PM on the intangible and tangible benefits (e.g., how they estimated expected improvements qualified by their confidence level).

• As participants reflected upon how they would apply what they learned, they began the action planning process and made commitments to take these actions.

The forecast was shared with key stakeholders of the initiative.  For example, a PM advisory group reviewed the forecast, which opened up robust conversation about how the PM initiative could best be fully deployed.  Key messages including the forecast data were developed in the context of an overall communication plan.

How Accurate was the Forecast?

A year or so later, a post-program ROI study was conducted and validated.  The actual ROI for the PM initiative turned out to be 120%.  The actual ranking of the tangible benefits from highest impact to lowest impact were identical with those from the forecast, which shows that forecasting is not only an alternative to a post-program ROI study, it is complementary as well.  Subsequent work with forecasting ROI suggested that the process of forecasting actually increased subsequent application and business impact.  Therefore there may be an ROI to forecasting ROI.  Plus, the insights gained from the forecast come early enough so that these insights can be used to enhance the deployment and impact of the initiative.

The Bottom-Line on ROI Forecasting

Forecasting ROI has proven to produce credible, accurate information that comes early enough in the life cycle of the HR, OD or learning initiative so that this information can be used to improve the initiative.  Forecasting is relatively inexpensive to do, which opens up the possibility for many initiatives, not just the heavy hitters, to be forecast.  Ultimately, forecasting is a reflective exercise for the participants as well as for the managers, sponsors and stakeholders of the initiative.  From reflection come insights, and when acted upon, these insights increase the business value of the initiative.

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This issue of Link&Learn was published in April 2008, by Linkage, Inc. (http://www.linkageinc.com). Please direct copyright and additional questions and comments to editor@linkageinc.com