How to show the ROI of your Continual Improvement?

[Manjeet Singh]

Continuous Improvement is becoming a focal point for more organizations, as well as the main roadmap item in the digital transformation journey. Organizations that strive to continually improve stay ahead of the competition, regardless of their size or industry.

But overhauling a business process is sometimes not trivial, and executives want to see the financial benefits before they pull the trigger on providing the approval. Calculating the ROI of a process or service improvement will help your leadership team visualize how the continual improvement approach achieves the company’s goals.

Formula to show the ROI of Improvements:

Benefits achieved from continual improvement can be put into two categories:

1. Direct ROI items that can be measured using a KPI and can be converted to a dollar value easily. Examples include cost saving, time saving, revenue generation, and productivity increase.

2. Indirect ROI items that are harder to quantify in dollars, but equally important to long-term growth and success. Examples include improved safety, reduced risk, and improved compliance.

So, to calculate the real value of improvement you should focus on capturing both direct ROI + indirect ROI.

How do you get started?

1. Set Measure what matter to you, "the most important Metrics."

In the Continual Improvement world, we talk a lot about “current state” and “future state,” in which you take your current state, set a goal future state, and generate improvements to achieve that goal. Generally, the goals revolve around the following three KPI buckets:

Impact: Cost Saving, Time Saving, Revenue Growth, etc. The CIM Dashboard provides prebuilt reports to capture the KPI based impact measurement. You can attach one or more KPIs to an improvement initiative, and then use the trend chart progress to show the quantifiable impact outcomes.

Engagement: User engagement summary, participation by business service or process.

The ability to track how many people are participating in the continual improvement effort is key to showing engagement and enthusiasm. With more engagement , you can collect more ideas and make more improvements at all levels in the organization.

Activity Level: Types and frequency of improvement, Total Number of Improvements, Submitted vs Completed Rate, Visibility in Relation to Status of Improvement. The Overview tab on the CIM Dashboard provides an easy way to see the metrics related to activity level.

2. Set SMART goals by attaching Improvement KPIs

The CIM plan–do–check–act (PDCA) process allow you to set measurable and specific goals. We recommend using a Performance Analytics based KPI as an automated measurement method. Once the KPI is attached, you can see the current state and value. Set your goal for the future state and by when you think you can meet your goals in the target review date (see screenshot below)

3. Provide visibility and transparency to everyone involved

Provide visibility into when an initiative was started and ended. When people know that you’re tracking data around their improvement work, there’s an increased sense of accountability that drives higher user engagement.

4. Align improvement initiative with business goals

Your improvement initiative should provide alignment with your business strategy. This is really important so that the executive team can see what improvements have been done in the last three or six months to meet the strategic goals.

ServiceNow CIM provides a structured process to associate your improvement initiative with business strategies. Once the association is done, you can see the available report on the CIM Dashboard.

5. See list of Improved KPIs and the different impact areas

All improvement KPIs that you attach to your initiative can be seen in one place on the CIM Dashboard. This provides an easy way to share the list of KPIs that have improved with their trend chart progress.

Calculate the direct ROI of improvement

Cost savings occur any time you cut out a wasteful step or remove duplication from a process. Improved processes make your employees’ time more valuable to your business.

For Example, in the Incident Management Process:

*  Assume agent’s salary amounts to $20 per hour.

*  Current state: Agent has the capacity to process 2 incidents per hour, costing the organization $10 per incident.

*  After Process Improvement: Agents are now able to process 5 incidents per hour, with an average cost of $4.

*  If your organization processes 100,000 incidents per year, the cost improvement was $50,000.

ROI = 600,000 / 50,000 *100

*  ROI = 1200%

Calculate the indirect ROI:

*Improved quality: The improvement in service quality and convenience will make customers happier, attributing to higher customer retention.

*Improved safety: customer, staff, patient, and vendor safety (for example, fewer accidents = lower costs).

*Improved compliance: Maintaining regulatory compliance protects your brand’s reputation in the eyes of stakeholders and customers.

*Reduced Risk: Improved processes typically offer better security and risk mitigation.

*Increased levels of employee/customer engagement.

In Summary, measuring, tracking, and reporting on continuous improvement is the single most important thing you can do to ensure that your organization keeps a competitive edge above the competition. Measure both the direct ROI and indirect ROI items to show the total outcome achieved.

For more information 

Here are additional Resources to learn more:

• Frequently Asked Questions to get you started with Continual Improvement Management (CIM)
• Top 5 reason why CSI initiative fails
• How do fit organization drive service excellence
• Best practices to adopt Continual Service Improvement