Create ROI Forecast

Title:
  Date:
Format: 12/13/2018
 
Steps

Introduction

What is the MCPCC ROI forecasting tool?

The online MCPCC ROI [Return on Investment] Forecasting Tool is designed to help organizations evaluate the likely payoff, in both financial and operational performance terms, of a proposed HR or Training investment before funds are committed. This decision-support Tool will simplify and automate the process of forecasting the total potential of programs/initiatives which have measurable business benefits. Following a step by step process, users customize the Tool with information and estimates relating to their proposed H R or Training initiative, and the Tool does the rest, automatically calculating a financial value (ROI) for the investment's potential.

Why should I use the Tool?

As a compliment to your existing processes for selecting HR and Training investments, the ROI Forecasting Tool will enable you to:

  • Optimize the value of your investment.
  • Add a reliable and predictive dimension to current investment selection processes.
  • Facilitate "best choice" decisions where alternative investments are under consideration.
  • Provide supporting analysis of assumptions, and of expenditure recommendations.
  • Identify a foundation for post-Program evaluation of results.
  • Make HR and Training investments with confidence.

When should I use the tool?

After you have identified a problem or opportunity facing your organization and are considering investing in one or more proposed HR or Training solutions.

How do I prepare to use the Tool?

In order to benefit most from the ROI Forecasting Tool, you should first determine which area(s) of business measure and related objectives/results (e.g. improved hiring ratios, reduced absenteeism, reduced accidents, reduced turnover, etc.) your proposed HR/Training investment will address.

As long as the proposed investment is designed to produce measurable improved performance in your selected area(s) of business measure, this Tool will help you develop your business case; i.e. will the benefits outweigh or justify Program costs?

Also, you will need to determine the cost of the proposed HR/Training investment initiative. The Tool includes automated Calculators and other guides that will help you develop average costs for certain operating-cost elements; specifically Operator/Driver Recruitment, and Training.

The MCPCC ROI Forecasting Toolkit

The MCPCC ROI Forecasting Toolkit contains everything you need to estimate the return on investment of your proposed Human Resources or Training investments. The online Tool guides you through the ROI process and automatically calculates the key outcomes based on your inputs. The ROI Forecasting Toolkit also contains several useful tools, calculators and guides.

As an alternative to the online toolkit, you may also download and print most of the tools, forms, and guides and manually develop your ROI forecast.

The following key elements of the toolkit are more fully described below:

  • ROI Forecasting Tool (An all-encompassing calculator)
  • Operator/Driver Recruitment Cost Calculator
  • Training Cost Calculator
  • Summary Report - ROI Forecast
  • Sensitivity Analysis (alternative assumptions) Tool

ROI Forecasting Tool/Calculator

This main component in the toolkit progressively takes you through the steps of the ROI forecasting process prompting you to enter information and data as appropriate. As you move through each step, the Tool provides guidelines to help you select relevant business measures and identify expected performance improvement resulting from the proposed HR/Training investment.

Additional Cost/Value Calculators

Operator/Driver Recruitment Cost Calculator [Average cost per Hire]
Used to determine the average cost to recruit one new operator/driver.
Training Cost Calculator [Average cost to train per Participant]
Used to calculate the average cost per participant to develop and deliver a specific training program.

Summary Report (Printable)

At the conclusion of the ROI forecasting process, the Tool completes all necessary calculations and generates a printable report detailing key process elements and results including ROI, optional scenarios, and intangible considerations.

Sensitivity Analysis Tool

Used to explore a selected range of “what if” performance improvement scenarios to help you arrive at a ‘best-choice’ decision.

ROI Forecasting Highlights

Following is an overview of the key steps required to estimate the ROI of your contemplated HR/Training investment.

Note: Steps 1-2-3 are foundational prerequisites which must be clearly identified/determined in order to meaningfully develop the subsequent ROI calculation.

Step 1

Describe the problem/opportunity and proposed investment.

  • What is the business challenge or opportunity? (e.g. excessive absenteeism, inefficient hiring ratios, increased accidents, etc.).
  • What is the proposed HR or Training solution? (e.g. updated recruitment screening program, incentive/rewards program, accident prevention program, etc.).
Step 2

Identify the business measures to be improved.

  • What are the intended business outcomes? (e.g. reduced absenteeism, employee turnover, lower accident rate).
  • What intangible benefits could also be realized? (e.g. improved customer service/satisfaction, enhanced public image, etc.).
Step 3

Target performance improvement of selected business measure(s).

  • Determine how much the selected business measure(s) should improve during the first post-investment year as a result of the proposed investment (e.g. absenteeism to be reduced by 5 absence days/shifts per month).
Step 4

Determine unit dollar value of expected business measure(s) improvement.

  • Convert the business measure(s) improvement to monetary value (e.g. reduction of one absence day/shift equals cost saving of $110).
Step 5

Calculate first year value of expected performance benefits.

  • Develop dollar value of first-year business measure(s) improvement.
Step 6

Factor additional years of benefit (if applicable).

  • Factor additional years if Program is expected to deliver significant value after the first year. In subsequent years, value may be discounted to reflect diminishment.
Step 7

Establish the cost of the investment Program.

  • Develop fully loaded direct and indirect costs of the HR/Training investment.
Step 8

Calculate the Return On Investment (ROI).

  • Calculate forecast ROI using Total Projected Benefits and Total Program Costs
ROI =

Total Program Benefits – Total Program Costs


Total Program Costs

x 100%
Step 9

Sensitivity Analysis Tool: Test your assumptions (Optional).

  • Use the Sensitivity Analysis Tool to prompt/ensure "best choice" assumptions by evaluating how revising improvement forecast(s) will produce different ROI values.
Step 10

Post Program Evaluation (Optional).

  • Progressively monitor actual vs. expected investment results for at least the first year to ensure that benefits are maximized via ongoing Program management.

Step 1 Describe the Problem/Opportunity

Problem or Opportunity

Briefly describe the problem, challenge or opportunity you plan to address with a Human Resources (HR) or Training investment.

Investment Description

Describe the HR/Training solution/investment your organization is considering purchasing or developing.

Step 2 Identify Business Measure to be Improved

Identify Business Measure to be Improved

Business Measures

When an organization considers investing valuable resources in a HR or Training program, it is usually doing so to address specific problems/needs, often including the need to improve specific business measures. Business measures are the operational elements used to describe and evaluate and address organizational performance - particularly financial outcomes.

Improving business measures in the bus industry, for example, might involve reducing accidents/costs, increasing ridership, reducing employee turnover/absenteeism, improving hiring ratios, etc.. Clearly, enhancing the performance of one or more of such business measures will benefit the organization's bottom line.

The MCPCC ROI Forecasting Tool requires you to identify the business measure(s) relevant to your proposed HR/Training Program and forecast how much the new program could reasonably be expected to impact those measures (performance improvement). Finally, the Tool helps you calculate whether the project's value will be greater than the anticipated cost of the solution (Return on Investment).

Tangible and Intangible Measures

Note: When forecasting ROI with the Forecasting Tool, the intended benefits/results of a contemplated HR/Training investment must be tangible business measures which can be quantified in dollars, so that Program costs can be readily weighed against the monetary value of intended/forecasted outcomes.

Intangible measures are not dollar-quantified (e.g. job/customer satisfaction, stress, tardiness, conflict resolution, etc.). These are usually impractical if not impossible to convert to a dollar value. However, in practice, every HR program or training solution, regardless of scope or content, will have intangible outcomes associated with it.

The MCPCC ROI Forecasting Tool will enable you to estimate the ROI produced in the form of performance improvement in the tangible measure you select, and will also help you identify/report the intangible Program outcomes.

To complete this Step of the process, you are first asked to identify the tangible business measure the proposed Program is expected to impact by either selecting one of the measures suggested in the drop down list, or entering in the box provided another measure you feel is/are more relevant to your organization or situation.

Secondly, you are asked to use the ‘Intangible’ tab and indicate which intangible measure the program may be expected to influence.

Note: To help in the identification and selection of the appropriate tangible and intangible outcomes, it may be useful to refer to a listing of some of the more common tangible and intangible measures.

Click "Tangible Measures" and "Intangible Measures" buttons to review a list of measures.

Tangible Measures Intangible Measures

Identify Tangible Measure to be Improved

Business Measure

Select from the drop-down list the business measure you expect to improve by implementing the HR or Training initiative.

Note: If the business measure you have identified is not on the drop-down list, select "Other" from the list, then enter the specified measure in the Other Measures box.

Business Measure
Other Measures

Identify Intangible Measures to be Influenced

Although intangible measures will not be converted to monetary value, it is important to identify those that the investment program is expected to positively influence. This will provide a more complete picture of the overall impact of the proposed investment on the business activities, culture, influence, and profitability of the organization.

Click "Intangible Measures" button to review a list of intangible measures.

Intangible Measures

Refer to the listing of intangible measures and select those measures you anticipate could be positively influenced by the proposed investment. Enter these in the boxes below. Also enter any other relevant potential intangible outcomes that do not appear in the listings.

Step 3 Target Performance Improvement

Targeting the Improvement

A key step in the ROI forecasting process is developing an estimate or forecast of the monthly or annual improvement in the selected business measure that might reasonably be expected as a result of the proposed HR or Training investment.

The decision to choose a particular investment is often based on the expectation that a given intervention will positively influence certain business measures. The critical question usually is, by how much?

Many organizations have found that it is good practice to involve multiple sources of input in quantifying such performance improvement estimates. The experience and credibility of the sources of input should be emphasized.

Determine how much the new HR/Training program/initiative will improve the business measure identified in Step 2. Select appropriate time period to indicate if your target is monthly or annual.

Business Measure Identified
Target
Time Period

Examples of Estimates

Scenario 1

As a result of a new defensive driving training program, National Bus Company estimates a reduction in their accident rate by 3 accidents/incidents per month (you would enter "3" in the 'target' box above, and select "Monthly" for 'time period').

Scenario 2

You anticipate that a new employee screening program will identify better qualified candidates. As a result, you estimate the high employee turnover rates will reduce by 2.5 turnovers per month (you would enter "2.5" in the 'target' box above, and select "Monthly" for 'time period').

Step 4 Determine Unit Dollar Value

Converting Improvement to Monetary Value

In the previous step, you identified the tangible business measure you expected to influence and estimated how much the measure might improve as a result of the proposed HR or Training Investment. In this step, the objective is to convert each performance improvement target to dollars and cents so that the monetary value of projected improvement can be weighed against Program costs to determine the ROI.

Determining Unit Dollar Value

The value of a tangible business measure is simply the average unit cost, or the average unit contribution to revenue, of the subject measure. Such unit values may exist within the organization as standard values or can usually be readily calculated from accounting/operating records.

Again, most tangible quantifiable business measures which your Program is intended to improve should be relatively easy to measure and convert to monetary values per increment/unit. Examples of tangible measures are: fuel savings (the average cost of a liter of fuel), increased ridership (revenue or profit from each extra fare); reduced repairs (average cost of a particular repair type, e.g. average cost of overhauling brakes).

Intangible Values
Training and HR Programs also frequently impact business measures that are considered intangible (improved employee satisfaction, reduced stress, etc.). In using the MCPCC ROI Forecasting Tool, it is not intended/practical to convert intangible business measures to monetary values.

Click the appropriate button to review a list of Tangible or Intangible measures.

Tangible Measures Intangible Measures

Use one of the three above tabs to convert your selected business measures to monetary values: Option A -Standard Dollar Values; Option B -Provided Dollar Value Calculators; Option C -User Customized Dollar Values.

Option A: Standard Dollar Values

If your organization has developed a standard value for the selected business measure, enter it in the box.

Many organizations have developed actual average costs for certain key measures (e.g. average cost: to hire one employee; of one day's absence; of an accident/incident).

Click ‘Converting to Dollar Value’ button to learn more.

Converting to Dollar Value

Standard Business Measure Value $
if Available
 

Option B: Provided Dollar Value Calculators

If your selected business measure (Unit of Improvement) is listed below, click the handy automated calculator button to calculate the average cost to your organization.

If either Calculator is used, post the calculated Cost-per-Successful-Hire or Cost-per-Trainee in the box below.

Calculated Business Measure Value $
 

Option C: User-Customized Dollar Value

When neither Standard or Calculated values are applicable to the selected business measure, the Tool user will need to originate the calculation of relevant dollar values by developing pertinent data and/or measurement advice from knowledgeable internal sources (accounting, HR, operations records/experience) and/or from authoritative external sources within or related to the industry.

Click ‘Converting to Dollar Value’ button to learn more.

Converting to Dollar Value

Customized Business Measure Value $
 

5Calculate First Year Dollar Value

First Year Dollar Value Calculation

This Step automatically calculates the annual dollar value of the performance improvement for the first year of the program only.

The estimated Performance Improvement and Dollar Values have been automatically calculated based on the information provided in Steps 3 & 4.

Performance Improvement multiplied by the Value of the Unit of Improvement, automatically generates the Annual Business Improvement.

First Year Performance Improvement Objective (Total Units)  
 
Dollar Value of Each Unit of Improvement $
 
Annualized Dollar Value of Expected Performance Improvement $
 

6 Factor Additional Years of Benefit (optional)

Factoring Additional Years of Benefit (optional)

Traditionally, the conservative approach to estimating training ROI is to consider only the benefits achieved in the first year of the initiative. Some HR programs, however, may continue to deliver progressively diminishing value for several years after the initial investment. As a result, you may want to factor into the ROI forecast the diminishing business benefits anticipated in future years.

This step is optional

You may add up to two additional years of value. Each extra year reflects an additional year of full value (100%).

If you choose to allocate diminished value to future years, choose the appropriate percentage from the drop-down lists below (e.g. if you estimate the second year residual benefit to be 70% of the first year benefit, select this value from the drop-down list).

  $
 
x
= $
 
x
= $
 
$
 

7Estimate Program Costs

Estimate Program Costs

To estimate the return on investment of the proposed HR or training program, you will also need to include the total cost to purchase or develop and implement the program. If you already know this cost, you will be able to enter the value directly.

Note: If your investment will be a training program (or an HR solution with a training component), you may choose to use the MCPCC Training Cost Calculator to develop program cost. If training is a Program component only, the Calculator will calculate the cost of this component and add it to the other Program costs (e.g. purchase or development costs).

Training Cost Calculator

If your investment is a training program (or an HR solution with a training component), you may choose to use the MCPCC Training Cost Calculator to develop the full cost of the training investment and its implementation.

Training Cost Calculator

Cost of the HR Investment/Solution $
 
Cost of Training $
 
Total Investment Cost $
 

8 Return on Investment

Calculating the Return On Investment

In this step the return on investment for the first year of the program is calculated automatically based on the information entered in the previous steps of the process and displayed as First Year ROI. The resulting value will be recorded and displayed in the Summary Report.

If you chose to forecast additional years of benefits, that value is displayed as Additional Years' ROI.

ROI Calculation

ROI =

Total Program Benefits – Total Program Costs


Total Program Costs

x 100%
Return On Investment Year 1
%
Additional Years' ROI (if Optioned)
%

Summary Report

Solution Name/Description
Date
Format: 12/13/2018

Tangible Business Measures

Problem or Opportunity
Unit of Improvement
Estimated Annual Performance Change (Total Units)  
 
Value of Units of Improvement $
 
Total Business Impact $
 
Total Solution Cost $
 
Return On Investment Year 1  
%
Cumulative Return On Investment Year 2  
%
Cumulative Return On Investment Year 3  
%

Intangible Business Measure

The proposed solution is also expected to result in improvements to the following intangible measures:

Intangible Benefits
Intangible Benefits
Intangible Benefits

Sensitivity Analysis Tool

Adjusting Your Initial Assumptions

At this point you may wish to evaluate your initial performance improvement target against alternative targets and ROI outcomes to ensure that your forecast consideration represent a "best choice". This process, called Sensitivity Analysis, allows you to quickly and easily test a range of "what if" scenarios for their impact on performance; and may warrant a decision to base your investment on a revised projection of performance improvement and related financial benefits.

Indicate if your trial performance estimates are monthly or annual values…

Time Period
Alternative Trial Forecasts
(Total Units - First Year Only)
Forecast ROI
%
%
%

Post Program Evaluation (Optional)

Monitoring the Post-program Outcomes

Print the Evaluation chart and use it to progressively monitor the actual post-program outcomes.

Completing this chart can help you and your organization improve ROI forecasting skills in the future, principally by providing useful feedback which compares your initial estimates and targets with the actual outcomes calculated by the MCPCC ROI Forecasting Tool.

This information may help you future develop more accurate estimates or set targets more closely attuned to your organizational realities.

Problem or Opportunity
Solution Name/Description
Unit of Improvement
Date of ROI Review
    Forecast     Actual
First Year Performance Change (Total Units)  
   
 
Value of Unit of Improvement $
  $
 
Total First Year Business Impact $
  $
 
Total Solution Cost $
  $
 
Return On Investment (ROI)  
%  
%
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