How the ROI Game Works

When people say ‚“my return-on-investment ‚½ or ‚“my ROI ‚½ or ‚“my value ‚½ for a program, sometimes they are asking for a number such as 125 percent, but more often, they are not. They are using ROI as a codeword ‚ a codeword that means something different for each person who uses it. To see how fast the definition of value changes and why it is important to be able to connect your answer to what is meant by each individual person, let ‚ s reminisce about a childhood game of communication called ‚“Rumor. ‚½

Children usually play ‚“Rumor ‚½ with eight to 10 people. The players sit in a chain, and someone volunteers to go first. The first person makes up a rumor: the more fantastic, the better. He or she then whispers the rumor into the ear of the next person, who in turn whispers it to the next person, and so on. When the rumor reaches the last person, he or she announces what he or she heard . Then the first person in the chain shares the original rumor, which usually bears little resemblance to the rumor after it ‚ s been passed along by all the children in the chain.

Important ‚  

Understanding value in an organization works much the same way as the game of ‚“Rumor. ‚½ What is described as valuable in an organization changes as it moves from the beginning of the chain (a senior executive) to the end (the individual performer). What ‚ s different in an organization is that the change in how value is described is much more predictable than in a simple game of ‚“Rumor. ‚½ That predictability is the key to breaking the ROI codeword.

Using the principle of cascading metrics, the financial measures at the top (profit, liquidity ratios, cash flows) are always broken down into more specific measures for the next layer of management. That management layer breaks the metrics down again. Eventually, what began as the financial measures of the top officers becomes the performance metrics of the individual contributor .