ROI: Methods and Pitfalls

 

     When at the company I co-founded (TeleSoft International), we had a lot of the components of success, but missed a number of crucial ones -- which eventually led to a dwindling and a slow death of the company. But one area that we did recognize (but likely did not do as well as needed) was that we needed to focus our limited resources where we had the best potential for income. This is the area that is called "Return on Investment" (which, I am sure, most of you already know) or ROI. The area of Investment includes labor, capital, goodwill, time, existing equipment, and (I'm sure) other aspects. Return on investment often is listed as a number -- the amount of income generated by use of all of the resources invested. But, in reality, income is not the only return that can be generated. "Goodwill" -- or a positive image and, perhaps, some later assistance -- is a completely valid return worth an investment.

     The first aspect of attempting to determine ROI (which is an art rather than a science, no matter what people may want to believe) is to adequately determine resources. How many people are available? What are their experience levels? What are their particular expertises? What can they do better than the average person at another company? How much money is easily available and for how long could it last before replenishment of capital is needed? Are there any areas (sales, marketing, distribution, quality control, testing, engineering, ...) that are not sufficiently staffed? If not, are there plans to get them staffed?

     Are processes in place to allow for growth? Can you handle a tripling of orders in a week or two? Can you survive success? If your growth curve started to become geometric rather than mildly linear, would you be screaming with success or with panic?

     Once resources are well known, you have the capability of comparing potential products against the amount of potential gain versus the amount of resources needed. It is not sufficient to just read about product notices and other industry press. Much of that is information trying to convince you that the products and services are important and needed. You need to know just what is being USED and what is in real upcoming budgets to be purchased. If you have access to huge unused resources then you can afford to take risks approaching potential market niches opening up. Most companies do not have such.

     So, you must focus on what is and what is being planned for. You need to be able to analyze other companies sales status and be able to actively network with people in other companies to exchange non-proprietary information that indicates direction of spending and growth. This was the primary area in which my company failed -- those in charge of gathering information did not like to go to conferences and other networking activities. The news from the ivory tower of publications and announcements were the primary indicators -- and they often were only wishful.

     You have your known resources and you have targets of development and expansion that can bring back revenue. Now you have to match them. Why should your company be working in this area? Does your expertise give you a learning curve advantage to allow you to take the lead in the market? Will people obviously turn to you with the expectation that you can provide what they need or do they need to be convinced? The former is definitely the preferred path. You must establish priorities. What resources need to be committed to what, and for how long? How do you determine a dead path -- when you should stop and devote your resources to other projects that still seem viable?

     You know your resources. You know what you would like to produce. You know what best matches between your resources and desired products. Now go to it.

     

Failure is not an option -- why not?

     "Failure is not an option" is a famous, and memorable, line from the movie "Apollo 13". I have a favorite shirt, slowly fading, with the line written upon it. Although the line exists within the movie, no one actually said it during the time of the Apollo 13 equipment failure. It is a summary/scriptline composed from a bunch of thoughts and explanations (post-event) from the NASA ground crew.
     Failure may not be an option -- but it does occur. In fact, it would be a rare occurrence, within a business environment, for failure analysis to not occur after an instance of a project or business failure. I am positive that, if I were to startup another business, I would make an entirely new set of mistakes.
     It is not currently popular, but failure analysis also is very useful within the non-business world. It is called "learning from history". It requires recording history as accurately as possible, studying that history, and analyzing what went well and what did not. (It is preferable if people choose to NOT repeat what did not go well.) All three of those steps are difficult but worthwhile.
     So, failure is certainly possible -- yet it still should not be considered an option. Within the world of computer programming, it might be considered to be the default condition. You keep planning for, and defining, all of the situations that you can think of -- and if none of those occur then it falls into the "default" case. It is the bottom basket into which all of the "not-planned-for" events fall.
     Failure occurs but it isn't planned for yet it can be (and, in business, often is) analyzed afterward. But is failure to be allowed? This often ends up being a Return On Investment (ROI) question. In the case of the human astronauts' lives in Apollo 13 there were severe limitations on materials and what could be done but, within those limitations, no effort was too much. In the case of human lives suddenly at risk because of accident or natural disaster, the cost is often analyzed only after the events have passed.
     In the case of the potential failure NOT involving human life, it is much easier to quantify the costs. These include the costs to avoid failure and the costs of having reached the point where one would call it failure (Edison once said "I have not failed. I've just found 10,000 ways that won't work.").
     It is most useful to determine first the value of success, then the odds of success, and then the amount of resources (time, money, energy) to be invested before purposefully stopping the effort. It could be argued that that would not be a failure because there is no way to know the final result if the effort continued. Yet it also would be difficult to call it a success. As the costs go up and the estimated value of success remains constant, it is a situation of "diminishing returns".
     In summary, failure is the final result when all of the plans for success have refused to come true. Failure, in itself, is not planned; it is not an option. The process of planning for failure makes it just one more planned result and if a planned result occurs then can it be failure?

I have not failed. I've just found 10,000 ways that won't work. Thomas A. Edison
Read more at: https://www.brainyquote.com/quotes/thomas_a_edison_132683

I have not failed. I've just found 10,000 ways that won't work.
Read more at: https://www.brainyquote.com/quotes/thomas_a_edison_132683

I have not failed. I've just found 10,000 ways that won't work.
Read more at: https://www.brainyquote.com/quotes/thomas_a_edison_13268