Jun 01 2016

One of the topics discussed often in consulting, and very often in the sales stage of engagements, is ROI. When will I get my investment back? This is of course important to any business owner and most managers. However, as with any metric or measurement, there are limitations and other factors to consider.

When making an investment or a purchase it is easy to calculate the current cost. It is also (usually) easy to estimate what you will get in return. Whether that is profit or reduced costs in a business or pleasure/utility for personal purchases.

What is all too often ignored is the on-going cost associated with the selection. I did some work with a major defence contractor a few years ago and it appears that governments are at least starting to think about “through life costs” when it comes to purchasing weaponry, in particular aircraft. Rather than just buy the cheapest ticket item today, they are thinking through the cost to maintain, upgrade & operate equipment throughout the expected life.

However, with all of this, the one thing that must be considered when making these decisions, besides what can be measured, is what can’t be measured. Deming cited Lloyd S. Nelson in saying, “the most important figures that one needs for management are unknown or unknowable but successful management must nevertheless take account of them.”

What other factors are important? What knowledge will people need? What learning will take place? What learning NEEDS to take place? How will this decision affect the culture? Will there be any resistance to this decision? What will the transaction costs really be? We can make estimates for the costs associated with all of these, but like any other projection, they are estimates.

Data is becoming ubiquitous and the current topic around data seems to be BIG DATA, but all the data in the world can’t predict the future. Use data where you can, but never expect that any amount of data will tell the whole story. We must still use our brains (and our guts) and think for ourselves.