Anyone can spend a budget, but can they get a return on investment?

By Andrew Bass | Blog, Use in The Next 10 Minutes

Listen to serving government ministers of all political stripes and they will try to convince you of their worth by telling you how much money they have poured into a particular strategic area, usually health, education or policing. It is surprisingly rare that anyone asks whether they have got an increase in value back for the extra money (never mind that the money they so generously have “given” was not theirs in the first place – this is a basic confusion for most politicians and they are not likely to make the effort to achieve clarity!).

Politicians do seem to dislike the inconvenience of considering the whole picture, preferring to select the most flattering bit of the story: and as we all know, it’s much easier to claim credit for effort – especially that of other people – rather than results.

Many businesspeople find it easy to scoff at this behaviour: after all, businesspeople a) pay tax that enables politicians to appear generous, and b) would never dream that their own organizations are often set up so as to maximise spending. Would they?

Well …

Business people also confuse inputs and outputs. Maybe it’s a general human tendency. Consider this:

Is the reported cost of your marketing the money you needed to spend to achieve the strategic result you sought? i.e. did you seek ideas which would give you the most bang for your buck and then allocate the bucks? Or was the spend allocated in the year previously, therefore acting as a powerful constraint on your marketing possibilities, so that for example:

  • if you developed mid-year a potential project with an unexpectedly high ROI – a desired output – you had no way of increasing your investment to take advantage in time?
  • because they had a fixed budget, people were psyched out of innovating more effective schemes in the first place?
  • your overall marketing emphasis enshrined a strategy at least a year and a half out of date?

And what about other areas:

  • Do you give your learning and development people a fixed budget which they then use up with whichever courses, programmes and modish trainers they can find? Or do you start with the behaviour and skills required by your business model and then figure out how most effectively to create them?
  • And what about IT,R&D etc?

Just as work expands to fill the time available, people always find a way to spend their pre-allocated budgets.

In contrast, I know businesses that have achieved dramatic results by drilling everyone to ask and answer the following simple question (too simple?) in response to any request for money: “What is the return on this investment?” And I’m not just talking about large scale project appraisal; I’m talking about every request for funds: perks, expense reimbursements, travel to in-person meetings, gadgets, bits of software, paperclips….

The point is not to stop people spending. Far from it – the point is to encourage ROI thinking, which is possible even at mundane levels. The more you encourage it, the more it becomes a habit, and then affects the overall quality of debate and decision making.

Give it a try: at first people might be taken aback, and find it hard to answer when you ask “What’s the return on this?”, but if you persevere, and coach them a bit, they will start to anticipate you, and start bringing you ideas you are delighted to say “Yes” to.


© 2012 Andrew Bass. All Rights Reserved.