April 30, 2018

Don’t “Black Box” Your ROI

In the course of our performing ROI work on behalf of our clients, we often run across financial models produced by other analysts.  Sometimes they are done by our competitors who previously delivered value selling support for our clients.  Sometimes they are done by internal value analysts employed by our clients or by reps who produce cost justifications on their own.

The quality of these ROI deliverables can really vary—occasionally they are pretty good: clear, clean and persuasive. And often they are less successful—they lack credibility or are visually distressing.  Yes, we are triggered by ugly financial models.

We can spend hours talking about best practices in producing and delivering effective ROI analyses to support sales opportunities (and sometimes we do!).  But today I want to focus on one ROI best practice that value selling deliverables like “black box” online calculators lack: transparency.

There's a great ROI in here--trust us!
There’s a great ROI in here–trust us!

Why is transparency so important for vendor-produced ROI business cases?  To state the obvious: customers review vendor-delivered cost justifications with a healthy dose of cynicism.  If your analysis lacks transparency, the customer is going to assume you’re hiding something.  And who can blame them? Vendors want to deliver a compelling argument to BUY.  And customers wouldn’t put it past a vendor to goose the ROI upwards if it’s going to increase the chances that a PO is going to get signed.  And it may not even be something so blatant as fuzzy math.  It might be that there’s a buried, aggressive assumption that escalates the ROI skyward.

As a vendor, how do you prove that your numbers are legitimate?  Be transparent!

Deliver your ROIs in a format that enables prospects to check your math.  And, as we have stated, that means that you should deliver live, transparent Excel to your prospects.  Not only does it enable your customers to adjust assumptions as they see fit, but it also lets them check your math until they are confident that the numbers work.

So no black box online ROI calculators that hide your math behind a inscrutable curtain and say “trust me.”

I’ll go even further: don’t take your Excel ROI output and convert it to untraceable PDFs or PowerPoint, unless the math is so straightforward that tracking the math is obvious.

The transparency of your ROI deliverable is enhanced by an effective process that prioritizes collaboration between the customer, the vendor, and the value engineer.  If customers have been effectively consulted throughout the engagement, they become intimately familiar with every assumption and every calculation.

A final note about transparency: complicated calculations can be just as bad as a black box even if you are using Excel.  Sometimes we have seen a single benefit object go on for ten or twenty rows or more.  These Pynchon benefits are nearly as bad—if a reviewer can’t track your math, your logic might as well be locked away.

Don't lock up your ROI
Don’t lock up your ROI