Why Looking at Return on Investment (ROI) is So Much Better than Cost

June 13, 2015

IveBeenThinkingBlog-1024x459How many times have you heard about managing cost (or saving money) in the past week? I bet quite a few, as almost all companies focus significant efforts on cost. In all functions, and certainly if you are in or responsible for Operations, a large portion of your responsibility is to reduce cost. Similar to real estate where it is “location, location, location”, I often hear about “cost, cost, and cost”. Certainly managing cost is vital to success; however, being solely focused on cost will drive you to failure!

Instead, I advocate thinking about return on investment. For example, if you spend $1000 instead of $100,000, yet the benefit is $1100 vs. $400,000 over the same time frame, which is better? Of course, when you spend $100,000, you quadruple your investment whereas you only gain 10% with the smaller investment. With that said, of course, it makes sense to minimize the $100,000 to $90,000 if it’s feasible so you don’t have to throw the baby out with the bathwater.

Although these numbers can be compelling, it isn’t the only reason to focus on ROI. If you are thinking only of cost, you will MISS opportunities to grow your business and innovate. Think of the “cost” in this case as an investment. Are you willing to invest in your success?

One tip to implement this week:

The great news is that no matter your position, you can start thinking about ROI. For every decision you make, consider the likely benefits and costs. Costs are not only financial; there could be hefty risks as well (with small or large investments). Most executives think this way for large capital investments; however, why don’t we think this way for the smaller decisions? We should!

It doesn’t have to be lengthy and time consuming. Just think about the benefits; ask a few questions (if you don’t know, you should find out anyway) and you’ll be much more confident that you’ll end up with a better result in the end. Those businesses that think about longer-term impacts (even if the return occurs within a quarter or year; it can seem longer-term at times) will thrive.

Looking for more ideas to keep your supply chain connected? Access more tips and resources on my blog. And keep connected by subscribing to my newsletter and email feed of “I’ve Been Thinking…”


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