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Relative Return on Investment
Having the right conversations about information value
Stephen Bounds
Executive, Information Management
stephen.bounds@cordelta.com
28 January 2020 2
Do any of
these sound
familiar?
28 January 2020 3
We have a great IM
plan, but my manager
always thinks that
something else is
more important…
No one cares
about anything
until a crisis hits!
We educate people, but they
nod their heads and then
revert to their old habits
Why don’t
people take
IM seriously?
Licensed under CC BY-NC-ND
Psychological
distance
28 January 2020 4
We think more concretely about things that
are nearer to us, and more abstractly about
things that are further away
Temporal distance
Whether an event is a long time
in the future or the past
Spatial distance
Whether you are separated by
a large geographic distance
Social distance
Whether you feel you know
someone well or not
Hypothetical distance
Whether you think an event is
likely to occur or not
Proximate and
ultimate goals
Starting
point
Proximate
goal
Proximate
goal
…
Ultimate
goal
28 January 2020 5
Typical
Information
Management
goals
28 January 2020 6
 Right information to the right person at the right time
 Faster information discovery
 Better organisational governance
 Fewer decision making errors
 Better knowledge retention
Proximate and
ultimate goals
Starting
point
Proximate
goal
Proximate
goal
…
Ultimate
goal
28 January 2020 7
Most information
projects sit here
6 ways to
optimise
outputs
Can we use information better to change … ?
28 January 2020 8
Category Description
Fixed cost the cost of turning the lights on
Incremental cost the cost of one more item
Cycle time time for one item start to finish
Throughput items per unit of time
Quality absence of errors and defects
Excellence going above and beyond to meet individual needs or do “cool stuff”
8 ways to
reduce waste
(Lean)
Category Description
Transport Moving people, products & information
Inventory Storing parts, pieces, documentation without need
Motion Bending, turning, reaching, lifting
Waiting For information, instructions, equipment, or parts
Over production Making or doing more than is immediately required
Over processing Completing to a higher standard than is necessary
Defects Needing to rework, scrap, or redo (products or information)
Skills Capabilities present but not used, tasking inadequately trained staff
28 January 2020 9
Can we use information better to reduce waste in … ?
RROI =
Relative
Return on
Investment
 Industrial re-engineering focuses on predictable outcomes
 Time & motion studies = do X, result isY, cost is Z
 Return on Investment (ROI) is known per event
 RROI provides a way to quantitively assess and
compare indirect outcomes from projects
28 January 2020 10
How it works
28 January 2020 11
Identify potential
initiatives
Target ultimate
goals
Quantify
assumptions
Perform benefits
modelling
Rank RROI and
agree on action
What can be
done
vs
What will
it do
28 January 2020 12
Ultimate goal
measurements
 Any benefit to be quantified as “takes X less seconds to doY”
should be treated with extreme caution unless it leads to:
 lower fixed or incremental costs (eg  assigned staff)
 decreased cycle time / increased throughput (eg  service levels)
 Increased “excellence” should be aligned to the principles of the
organisation, and still quantified, eg
 higher customer satisfaction scores
 lower staff absenteeism
28 January 2020 13
How will the
needle move?
NB: measures can be financial or non-financial. For global interventions,
separately model business outcomes across multiple teams / sections.
28 January 2020 14
Caution:
Power law
 Normal distribution
(bell curve) only describes
products of true randomness
 Power law distribution
(80/20 curve) applies for most
social / economic patterns,
especially where past state
influences future
28 January 2020 15
Propensity and
variability
 Understanding propensity (likelihood of occurrence) is key
 Power law environments with low transaction volumes can lead to
highly variable outcomes
 eg if you have 200 transactions a year, and only 1 in 1000 leads to
catastrophic failure, there is a strong temptation to act as if the
possibility for catastrophic failure does not exist
 Variability must be explicitly flagged with management to set
expectations
 A “good year” doesn’t mean things are working
 A “bad year” doesn’t mean that the process is broken
 If your model is sound, it is correct to measure behaviours, not
outcomes in the short to medium term
28 January 2020 16
MonteCarlo
modelling
 Monte Carlo simulations build a model of the world and use this to
simulate outcomes.
 Re-running the model multiple times shows both variability and
expected (average) results.
 Can approximate real-world results
without a known algorithm, eg
calculating area of a circle:
28 January 2020 17
Recap
So far we have:
1. Proposed and costed our initiatives
2. Identified the business benefits
3. Quantified expected benefits through modelling
28 January 2020 18
RROI ranking
(finally!)
28 January 2020 19
Financial RROI evaluation
Non-financial RROI evaluation
Now what?
 RROI provides a powerful tool to link indirect benefits to real
outcomes
 Leads to better conversations about assumptions and
expectations
 Relies upon a model of all futures, not a prediction of the future to
make smarter choices
 After model is agreed, the shift can focus to immediate measures
and accountability
 Once armed with actual results – review outcomes and if
necessary, refine your organisation’s model of the world
28 January 2020 20
Questions?
28 January 2020 21

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Relative Return on Investment

  • 1. Relative Return on Investment Having the right conversations about information value
  • 2. Stephen Bounds Executive, Information Management stephen.bounds@cordelta.com 28 January 2020 2
  • 3. Do any of these sound familiar? 28 January 2020 3 We have a great IM plan, but my manager always thinks that something else is more important… No one cares about anything until a crisis hits! We educate people, but they nod their heads and then revert to their old habits Why don’t people take IM seriously? Licensed under CC BY-NC-ND
  • 4. Psychological distance 28 January 2020 4 We think more concretely about things that are nearer to us, and more abstractly about things that are further away Temporal distance Whether an event is a long time in the future or the past Spatial distance Whether you are separated by a large geographic distance Social distance Whether you feel you know someone well or not Hypothetical distance Whether you think an event is likely to occur or not
  • 6. Typical Information Management goals 28 January 2020 6  Right information to the right person at the right time  Faster information discovery  Better organisational governance  Fewer decision making errors  Better knowledge retention
  • 8. 6 ways to optimise outputs Can we use information better to change … ? 28 January 2020 8 Category Description Fixed cost the cost of turning the lights on Incremental cost the cost of one more item Cycle time time for one item start to finish Throughput items per unit of time Quality absence of errors and defects Excellence going above and beyond to meet individual needs or do “cool stuff”
  • 9. 8 ways to reduce waste (Lean) Category Description Transport Moving people, products & information Inventory Storing parts, pieces, documentation without need Motion Bending, turning, reaching, lifting Waiting For information, instructions, equipment, or parts Over production Making or doing more than is immediately required Over processing Completing to a higher standard than is necessary Defects Needing to rework, scrap, or redo (products or information) Skills Capabilities present but not used, tasking inadequately trained staff 28 January 2020 9 Can we use information better to reduce waste in … ?
  • 10. RROI = Relative Return on Investment  Industrial re-engineering focuses on predictable outcomes  Time & motion studies = do X, result isY, cost is Z  Return on Investment (ROI) is known per event  RROI provides a way to quantitively assess and compare indirect outcomes from projects 28 January 2020 10
  • 11. How it works 28 January 2020 11 Identify potential initiatives Target ultimate goals Quantify assumptions Perform benefits modelling Rank RROI and agree on action
  • 12. What can be done vs What will it do 28 January 2020 12
  • 13. Ultimate goal measurements  Any benefit to be quantified as “takes X less seconds to doY” should be treated with extreme caution unless it leads to:  lower fixed or incremental costs (eg  assigned staff)  decreased cycle time / increased throughput (eg  service levels)  Increased “excellence” should be aligned to the principles of the organisation, and still quantified, eg  higher customer satisfaction scores  lower staff absenteeism 28 January 2020 13
  • 14. How will the needle move? NB: measures can be financial or non-financial. For global interventions, separately model business outcomes across multiple teams / sections. 28 January 2020 14
  • 15. Caution: Power law  Normal distribution (bell curve) only describes products of true randomness  Power law distribution (80/20 curve) applies for most social / economic patterns, especially where past state influences future 28 January 2020 15
  • 16. Propensity and variability  Understanding propensity (likelihood of occurrence) is key  Power law environments with low transaction volumes can lead to highly variable outcomes  eg if you have 200 transactions a year, and only 1 in 1000 leads to catastrophic failure, there is a strong temptation to act as if the possibility for catastrophic failure does not exist  Variability must be explicitly flagged with management to set expectations  A “good year” doesn’t mean things are working  A “bad year” doesn’t mean that the process is broken  If your model is sound, it is correct to measure behaviours, not outcomes in the short to medium term 28 January 2020 16
  • 17. MonteCarlo modelling  Monte Carlo simulations build a model of the world and use this to simulate outcomes.  Re-running the model multiple times shows both variability and expected (average) results.  Can approximate real-world results without a known algorithm, eg calculating area of a circle: 28 January 2020 17
  • 18. Recap So far we have: 1. Proposed and costed our initiatives 2. Identified the business benefits 3. Quantified expected benefits through modelling 28 January 2020 18
  • 19. RROI ranking (finally!) 28 January 2020 19 Financial RROI evaluation Non-financial RROI evaluation
  • 20. Now what?  RROI provides a powerful tool to link indirect benefits to real outcomes  Leads to better conversations about assumptions and expectations  Relies upon a model of all futures, not a prediction of the future to make smarter choices  After model is agreed, the shift can focus to immediate measures and accountability  Once armed with actual results – review outcomes and if necessary, refine your organisation’s model of the world 28 January 2020 20