Julius Černiauskas, CEO at Oxylabs.io
Profit incentives underlie all business growth. Whether we are plugging in resource sinks or adding new streams of revenue, growth is an attempt to squeeze more return on investment in the long run.
It is easy, however, to lose sight of the goal and start creating growth for growth’s sake. After all, scaling and growing is fun and rewarding. As long as a company has enough cash flow, most hires won’t cause much trouble.
What lies unnoticed is the opportunity cost. You might have even heard (and believed) “that’s as good as it can be”. There’s no objective outside metric that can accurately measure how well any particular business could run. As a result, it’s easy to fall into the trap of thinking that whatever the current performance is, it’s as good as it gets.
Measuring project ROI
Some businesses might forgo accurate ROI calculations, especially if they have a lot of investments coming in. Additionally, in the early stages of a project, it’s expected that the ROI might be in the red for quite some time.
Getting data, however, isn’t just about seeing performance. It can be used to inform hiring, resource allocation, and strategic decisions. Of course, data has to be granular enough to serve as a benchmark. Each department should be carefully assessed as should the entire project.
Over time, changes in ROI can reveal resource allocation inefficiencies. A simple example would be to measure changes after adding or removing personnel from the project. Small swings can indicate inefficient allocations, while large swings mean efficient ones.
Additionally, ROI can provide insight where to put the best talent. If there are several projects or arms of business, the one with the best performance is likely to benefit the most from top talent.
Of course, careful consideration has to be taken when measuring non-performance channels. For example, content, support, PR, and even legal teams might not have a direct impact on ROI. That doesn’t mean their input is not valuable, it’s just harder to measure.
Marginal gains (or diminishing returns) should be taken into account. There’s a limit to effective resource usage. Adding in more money or more talent eventually won’t grant any additional returns. In fact, in that case, opportunity cost rears its ugly head yet again. All those resources, that are doing little to nothing, could be doing much more elsewhere.
Thus, constantly monitoring the changes in ROI or, at least, predicted ROI is vital. Otherwise, we run the risk of falling into the illusion of “it’s as good as it can get” and not allocating resources effectively.
Measuring efficiency
Not all projects are made equal. Some of them will require inordinate amounts of effort to maintain for a lot of gain. Unfortunately, some will take a lot of effort for little gain.
Luckily, task management systems can provide an accurate representation of the ratio. Of course, the systems themselves have to be carefully managed as data can quickly become skewed and destroy any accuracy it might have.
If it is maintained, though, task completion can add a third vector of measurement. Hedging tasks completed per period of time (and per person) against project ROI and resource allocation will reveal a lot of vital insight.
Most importantly, it lets businesses discover resource sinks. These projects can then be analyzed to uncover the root causes of such inefficiencies. Without proper ROI and task efficiency tracking these issues might be completely invisible.
Additionally, task completion rates are a good secondary metric for the effectiveness of talent allocation. Large increases in ROI, but small improvements in tasks completed over time might indicate a productivity issue within the project (if all other things are taken into consideration).
Getting off on the right foot
Finally, a lot of projects start with the Facebook motto of “move fast and break things”. There’s a lot of hype, speed, and agility right at the start. Unfortunately, that often leads to horrendous starts that require a lot of fixing.
Such an approach eventually leads to mass confusion due to a lack of control over processes. Not establishing guidelines, proper procedures, and workflows works at the start. But right after a bit of scaling everything starts falling apart. Then resources have to be reallocated to fix the mess, if it’s worth fixing.
Resource reallocations are surprisingly costly. Experts have to carefully adjust their own time away from some project. All that time is lost opportunities on something that might be bringing in more ROI.
I’m a proponent of “move fast, but good enough”. That means building a good foundation right off the bat, but not fretting about the details. A good example would be building a “good enough” website at the start of the project. A lot of professionals start optimizing the last 2% of efficiency when the foundational 80% haven’t even been built.
In other words, worrying about conversion rate optimization, perfect UX, and enticing sales copy won’t have much of an impact if your website brings in no customers. In fact, it detracts from the project and is making it more likely to fail.
“Good enough” means essentially applying the Pareto principle to project management. Assignees should primarily focus on the foundations that will start bringing in revenue. From my experience, sending in top talent works best when highly skilled optimizations are required. Squeezing out the final 10-20% ROI takes the best and that’s where they shine.
Conclusion
Effectiveness of management practices can be measured through data. You don’t have to always just look at ROI and think of how to bring it higher. Asking “why” is equally as important and finding the answers, even if it isn’t instantly practically applicable, is a great learning experience in management.
