Do your metrics have a positive ROI?
Metrics are important, but not everything needs to be measured in a data-driven world. Adding a metric without understanding the upstream and downstream consequences is easy. That is why it is important that your metrics have a positive return on investment (ROI).
ROI is a simple calculation where the benefits are divided by the cost, and if the benefits are greater than the cost, you have a positive ROI. This might sound obvious, but most of the time, metrics are implemented in silos, and upstream and downstream impacts are not understood and accounted for.
So, what are the potential benefits and costs of metrics:
Potential benefits:
Enhanced clarity by leadership resulting in enhanced decision-making outcomes
Changed behavior that results in more revenue-generating activities or reduced cost-generating activities
The benefit of not having to maintain other metrics and related costs if a metric is replacing one or more metrics
Reduced friction between areas with metrics that align teams or departments with organizational objectives
Potential costs:
Time spent in calculating metrics by individuals
Storage and processing costs in creating metrics
Time spent rolling out new metrics
Time spent communicating and reviewing metrics
Changed behavior that results in less revenue-generating activities or increased cost-generating activities
Enhanced friction between areas with metrics that misalign teams or departments
Each metric that is implemented should have a clearly positive ROI. The purpose of calculating ROI is not just to come up with a precise measure though. We think calculating ROI related to new metrics is most valuable because it provides a process for deliberate thought around implementing new metrics and maintaining old metrics.
Just as important as determining the ROI on new metrics, you should ensure the ROI on existing metrics is still positive. While metrics are not something that should be changing all the time, they should be reviewed and updated deliberately.
Hopefully, this post helps you think more about your metrics and their ROI. Much of being a data-informed organization is simply the critical data thinking that goes about aligning to the desired organizational mission.
This is the first in a series of posts we have planned around metrics. I think metrics should be front and center in an organization that values data because metrics are something that people are already familiar with and use regularly. More importantly, I think good, communicated metrics can unite and accelerate an organization.
Looking to implement metrics & KPIs in your organization and need help? Make sure to contact us and see if I can help.