ROI in the Public Sector: Why it's Important and Best Ways to Demonstrate it
Your organisational decisions shouldn’t be guesswork.
Return on Investment is one of the best ways to see how well your organisation is doing and which areas you could improve to help achieve your goals.
But, why is this so important in the public sector and how can we demonstrate it?
Find out right here.
Firstly, What Does Return on Investment (ROI) Mean?
Return on Investment is a tool to show key stakeholders, managers or employees the financial gain from a project after initial investment. You might think this is more difficult in the public sector than in another other organisation, but it is possible to show the value of productivity and investment, especially when it comes to public needs.
ROI can be used to evaluate certain organisational decisions and compare them to initial costs, as well as evaluate future investments. It’s usually calculated or presented as a percentage, which makes it easier to compare the effectiveness or profitability of different investment choices.
How to Calculate or Measure ROI
Firstly, you need to understand what figures and data metrics contribute to your organisation’s goals and mission. The aim of ROI is to connect certain activities to financial returns in order to justify time, money and engagement spent in those activities to reach those goals.
Calculating ROI is dependent on the type of metrics you are looking for, but the most common formula for ROI is:
ROI = (Net profit / Cost of investment) x 100
What’s Classed as Successful or Positive ROI?
As a simple definition, a good or positive return on investment is when your investment value into a project or campaign exceeds your expenses. For example, if your organisation invests £5,000 into a new project and generates £7,000, this is positive ROI as you’ve made more than you spent.
You won’t know straight away if the amount you invested will generate a positive return as this takes time to build up, so it’s important to set a timeline for calculating your return on investment.
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What if You Can’t Accurately Measure Your Results?
Depending on what you’re trying to prove with data metrics, some things are more difficult than others to measure with ROI – for example content marketing or social media marketing, especially for public sector organisations.
If you find yourself in a situation where you want to prove the potential impact of certain actions but can’t accurately measure your results, here’s two things you can do:
- Demonstrate the strategy you followed so it can be repeated – you can’t measure the impact of a strategy without defining what it is you did. Think about the financial cost of putting that strategy in place and the financial gain because of that strategy.
- Create simple and easy-to-read reports - even if you just have raw data that doesn’t prove you made any money, you can prove that some things happened. You need to explain where these stats came from – not from thin air we hope!
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5 Benefits of Demonstrating ROI in the Public Sector
- Help you improve your strategy
By showing or calculating your ROI, you can adjust your strategy according to your results. These results don’t need to be revenue-focused either, they can be metrics that determine the success of your efforts.
- Gain buy-in from key stakeholders
Effectiveness matters even more so after the COVID-19 pandemic, so by demonstrating the results from your investment analysis techniques in your reporting, you can demonstrate value for money and gain support from stakeholders or senior staff on a new project.
- Understand division or team performance in your organisation
If you’re a manager or leader, using ROI can help you evaluate the performance of your staff which will enable you to make decisions about expansion and the potential earnings or growth that could come from this.
- Simple yet impactful for all
Calculating ROI doesn’t require tonnes of data or a complicated method to follow. It’s very easy to demonstrate to anyone in the organisation – from stakeholders to staff in various departments with little background in data analysis. Although you can demonstrate the meaning of your ROI results, everyone would be able to make their own opinions and share their thoughts that could help positively impact your future strategy.
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- Justify or defend budges
If you’re aiming to implement a new project or campaign across the organisation, things can get costly, so what better way to show or defend your budget than through ROI calculations or predictions. If you can prove that your plans will be successful and generate positive ROI, you can gain support for your projects in no time.
3 Ways You Can Demonstrate or Prove ROI
- Use effective but presentation
As we discussed above, the calculation for ROI is simple, but it’s how you present it that matters. If you’ve calculated your ROI using Excel, it’s probably not the best idea to use confusing spreadsheets when presenting your results to staff or key stakeholders.
They want to quickly see what the benefit is and how it impacts them. Less is always more. Aim to show less than five results (e.g. as charts or easy-to-read graphics) as anymore could confuse the audience and make them wonder how the results are going to meet future expectations or goals.
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- Break down direct and indirect benefits of ROI
Direct benefits are those that are guaranteed or expected to happen as a result of a new strategy or project, and indirect benefits are those that are caused by increased worker or management productivity as a result of positive ROI.
Differentiating direct and indirect benefits are important as your team or stakeholders are more likely to believe in the impact and results of your metrics or analysis.
- Link ROI results to wider organisational goals
Goals are important for any organisation, but public sector organisations may feel more pressure to meet goals due to public reliance and demand. Whether your goals are big or small, use ROI to measure the value of the outcomes and how this can help achieve goals or aims that will improve higher-quality service delivery for the public sector.
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