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Business owners analyze the performance gap to discover how far the business has come, how far it still needs to go, what areas of the business are performing up to standards and which ones need the most improvement, according to the Houston Chronicle. Sometimes, closing a performance gap lies in training personnel, while other times it is necessary to update technology. Occasionally, the gap is addressed through reorganization and dismissal of employees.
Learn more about HR

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Business owners analyze the performance gap to discover how far the business has come, how far it still needs to go, what areas of the business are performing up to standards and which ones need the most improvement, according to the Houston Chronicle.

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How to Conduct a Performance Gap Analysis

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There's always room for improvement in your business, but you need to identify your performance gaps if you want to improve upon them. A gap analysis will establish how big the gap is between your current performance and your desired performance. By establishing this gap, you can work at closing it and continually ...

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For many businesspeople, the last thing you want to worry about (or do) is managing people. You want to get out there and meet customers and create awesome products and bring exciting new opportunities through your front door. But unless you've hired people to take on the task of managing your employees, then you're still on the hook.

The good news is that you can make that task a little bit easier for yourself by remembering these 7 essential leadership keys, and your organization will benefit as a direct result.
1. Delegate wisely
The key to leadership success is to learn to effectively delegate both the responsibility for completing assignments and the authority required to get things done. Many bosses feel that they need to control every little thing that their employees do. This is a recipe for disaster. When you delegate work to employees, you multiply the amount of work you can accomplish while you develop your employees' confidence, leadership and work skills.
2. Set goals
Every employee needs goals to strive for. Not only do goals give employees direction and purpose, but they ensure that your employees are working towards the overall organizational goals. Set specific and measurable goals with your employees, then regularly monitor their progress toward achieving them.
3. Communicate
Far too many bosses communicate far too little. It's often difficult for busy business owners and executives to keep their employees up-to-date on the latest organizational news. Regardless, you must make every effort to get employees the information they need to do their jobs quickly and efficiently.
4. Make time for employees
Above all, leadership is a people job. When an employee needs to talk with you--whatever the reason--make sure that you set aside the time to do so. Put your work aside for a moment, put down your smartphone, and focus on the person standing in front of you.
5. Recognize achievements
Every employee wants to do a good job. And when they do a good job, employees want recognition from their bosses. Unfortunately, few bosses do much in the way of recognizing and rewarding employees for a job well done. The good news is that there are many things bosses can do to recognize employees that cost little or no money, are easy to implement, and that take only a few minutes to accomplish.
6. Think about lasting solutions
No matter how difficult the problem, there is always a quick solution, and leaders are happiest when they are devising solutions to problems. The trouble is that, in our zeal to fix things quickly and move on to the next fire, we often overlook the lasting solution that may take longer to develop. Although it's more fun to be a firefighter, the next time you have a problem to solve in your organization, deal with the cause of the problem instead of simply treating the symptoms.
7. Don't take It all too seriously
Without a doubt, running a company is serious business. Products and services must be sold and delivered, and money must be made. Despite the gravity of these responsibilities, successful leaders make their organizations fun places to work. Instead of having employees who look for every possible reason to call in sick or to arrive to work late or go home early, organizations work hard and play hard end up with a more loyal, energized workforce.

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7 Keys to Becoming a Remarkably Effective Leader

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For many businesspeople, the last thing you want to worry about (or do) is managing people. You want to get out there and meet customers and create awesome products and bring exciting new opportunities through your front door. But unless you've hired people to take on the task of managing your employees, then you're still on the hook.

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Employee Training and Development: Reasons and Benefits

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© Copyright Carter McNamara, MBA, PhD, Authenticity Consulting, LLC. Typical Reasons for Employee Training and Development Typical Topics of Employee Training General Benefits from Employee Training and Development Library's Blogs About Training and Development In addition to the articles on this current page, also see the following blogs that have posts related to Employee Training and Development.

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Culture is one element of high performance. The other component is delivering results. Tie goals to the strategy and communicate those goals broadly. Let the team know how you'll measure their performance and communicate the results of that performance - both good and bad.

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Communication is something we do reflexively -- like breathing. We talk to our spouses, kids and friends without giving much thought to how we're doing it.

It might seem easy, but communicating effectively actually takes quite a bit of finesse. Choosing the right words, listening with our minds instead of just our ears, and getting our message across are skills that we all need to work on.

At home and in social settings, miscommunication can lead to arguments. In the workplace, the repercussions can be far more serious. Poor productivity, unmotivated employees -- even lawsuits -- can result from communication breakdowns at the office.

To improve communication within your team and throughout your entire company, you need to implement a few easy but important changes to your corporate philosophy and practice.

In this article, you'll learn some of the tips management experts use to improve communication. You'll also see how changing your communication strategy can lead to real improvements in employee motivation, productivity and profitability.

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10 Tips for Effective Workplace Communication

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Communication is as easy as breathing, but doing so with coworkers can be tricky. Someone could misconstrue a friendly e-mail, micromanage employees to death or even commit a cultural faux pas. Luckily, we'll show you how to avoid these missteps.

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4 - Good Communication Results in a More Productive & Talented Workforce

Employee engagement is a significant factor in the productivity of a workforce. But besides contributing to increased employee engagement, communication skills can also help foster a more productive and talented workforce in many other ways:

Understanding team talents & skills. In a company culture focused on connecting with others, managers better understand the talents and skills of their workforce. Some communication patterns aren't forthcoming with their talents and skills, or express them in ways a fast-paced or high-level-thinking communicator won't naturally notice. Mastering the identification of communication patterns empowers a leader to better understand the skills and talents of their team.

Achieving more buy-in. With the right communication tools, a leader can influence initiative buy-in from their team.

Innovation and creative thought. A workplace that communicates more effectively establishes a "safe" place for people to think creatively and express their ideas. It helps employees feel more comfortable taking ownership for challenges and projects, and typically results in more creative brainstorming or problem-solving initiatives.

More strategic team building. Understanding communication patterns gives a leader more information about their employees, and often information they would have otherwise overlooked. This powerful insight lets the leader make more strategic decisions on delegation, employee development, team development, and strategic initiatives to drive business success.

What's the Bottom Line?

The bottom line is that good communication isn't just about being able to more accurately and concisely present information and ideas. It's also not just about mitigating conflict or creating a more positive team environment. Communication is integral to sales, client relationships, team development, company culture, employee engagement and buy-in, and innovative thought.

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The Power of Good Communication in the Workplace | Leadership Choice

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In the workplace, good communication isn't just about mitigating conflict (although that is an important benefit of communicating effectively). Good communication in the workplace is also an important factor in client relationships, profitability, team effectiveness, and employee engagement.

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ROI is a popular general purpose metric for evaluating capital purchases, projects, and programs, as well as investments in stock shares and the use of venture capital.

ROI metrics compare investment gains directly to investment costs.
What is the "Return on Investment ROI?"
Return on Investment ( ROI) is a favorite financial metric for evaluating the economic consequences of investments and actions. The calculated ROI is a ratio, or percentage, comparing net gains to net costs. ROI is in frequent use because, in this way, ROI provides a direct and easily understood measure of investment profitability.

Like other cash flow metrics (NPV, IRR, and payback) ROI takes an Investment view of the cash flow stream that follows from an action. Each of these metrics compares likely returns to likely costs in a unique way and, as a result, each carries a message of its own about the cash flow stream. This family of metrics, therefore, provides several different ways to ask questions like this: Do investment returns justify the costs?

ROI Result As a Percentage

Investors and decision-makers use the ROI metric to compare the magnitude and timing of expected gains with the scale and timing of costs.

In fact, several different metrics are called return on investment, or ROI, but the best known is the cash flow metric defined here as Simple ROI or the Return on Investment Ratio.

Simple ROI compares returns to costs by making a ratio between cash inflows and outflows that follow from the investment. By definition, the ROI ratio calculates as net investment gains divided by total investment costs.

Analysts usually present the ROI ratio as a percentage. When the metric calculates as ROI = 0.24, for instance, the analyst probably reports ROI = 24.0%.

A positive result such as ROI = 24.0% means that returns exceed costs. Analysts, therefore, consider the investment a net gain.

The opposite kind of result, negative ROI results such as -12.7%, means that costs outweigh returns. Analyst, therefore, view the investment as a net loss.

Consequently, when comparing two or more investments-and when risks and other factors are equal-the investment with the higher ROI is the preferred choice.

Return on Investment: Use and Misuse

ROI has become popular in the last few decades as a general purpose metric for rating capital purchases, projects, programs, and initiatives, and also investments in stock shares and the use of venture capital. Because ROI is popular and widely used, however, decision-makers and analysts should remember that many who produce ROI figures have a poor grasp of the metric's weaknesses and unique data needs. With ROI figures from an unknown source, therefore, the wise decision maker will also ask to see the source data for those results.

Some analysts say that "simple" ROI measures profitability. While that statement is accurate and useful, other businesspeople borrow a term from the field of economics and claim that ROI means efficiency. That usage is arguably less helpful because many people use the same word-"efficiency"-to describe the meaning of quite a few other metrics, including the Internal rate of return IRR, payback period, inventory turns, and return on capital employed ( ROCE).

Explaining Return on Investment ROI in Context

Sections below further define, describe and illustrate return on investment ROI. Note especially that the term appears in context with related terms and concepts, from the fields of business analysis, investment analysis, and finance. The following issues receive particular emphasis:

What Does the Return on Investment Concept Mean?

The name of the return on investment metric describes its meaning. It is not surprising, therefore, that businesspeople use ROI to address questions like these: "What do we receive for what we spend?" And, "Do expected returns outweigh the costs? Also, "Do the returns justify the costs?" And, finally, "What is the profitability of the investment?"

The simple ROI metric answers these questions by making a ratio (or percentage), showing the size of net gains relative to the size of total costs directly.

Consequently, when total returns exceed total costs, net gains are positive, and the ROI metric is positive (greater than 0).

The opposite outcome (negative net gains) leads to a negative ROI (less than 0). A negative ROI means, therefore, that total costs outweigh total returns and the investment is a net loss.

Thus, for example, a result of ROI = 10%, says that returns exceed costs by 10%. And, with a 10% ROI, the investor can rightly say "the action earned 10% on costs," and that "profitability was 10%." In the same way, an ROI of -10% says that earnings and profitability were negative.

As a result, when different proposals compete for funds, and when other factors between them are truly equal, decision-makers view the option with the higher ROI as the better choice.

ROI Does Not Measure Risk

Decision-makers should know that ROI figures alone are not a sufficient basis for choosing one action over another. That is because ROI shows how returns compare to costs only if the hoped-for results arrive. The ROI figure, therefore, shows expected profitability but says nothing about uncertainty or risk. Consequently, the wise analyst also estimates the likelihood of different ROI outcomes, and wise decision-makers always consider both the size of the metric and the risks that come with it.

Decision-makers will probably expect the analyst to produce ROI figures and also measures of risk, of course, but they will also expect practical advice on ways to improve return on investment by reducing costs, growing income, and moving gains forward in time (as the arrows in the figure above suggest).

Calculating ROI For Decision Support and Investment Analysis

Analysts usually present return on investment as the return (net gain) due to an action divided by the cost of the act. That is the simple ROI version of the cash flow metric for rating investments, business case results, and other actions.

The analyst will probably receive the ROI request as a question such as this:

What is the ROI for a marketing program that will cost $500,000 and deliver an additional $700,000 in profits over the next five years?

To find simple ROI, divide the net gains from the investment by the investment costs, then report the result as a percentage. Here, the marketing program ROI turns out to be 40%:

Note especially: Results such as the 40.0% figure above mean something only when both the gains and the costs are undoubtedly due to the action, and are not due in part to other causes. In complicated business settings, however, it is not always easy to match specific returns (such as greater profits) with the specific costs that bring them (such as the costs of a marketing program). As a result, when the match between "returns" and "costs" is doubtful, the ROI metric loses validity as a guide for decision support. ROI validity also suffers when the cost figures include allocations or indirect costs, which are probably not due to the action.

ROI Compares Competing Choice, Cash Flow Streams

Sections immediately below show how ROI metrics compare two investment cases that are competing for funding. Comparisons of this kind turn up when decision-makers must prioritize incoming proposals to choose those that will justify their costs. At the same time, they will deny funding to those that will probably bring smaller returns or even a net loss. As a result, Capital Review Committees, Project Management Officers, strategic planners, and others, routinely turn to metrics that take an "investment view," of proposed actions. When using ROI to compare two proposals, other things being equal, decision-makers will probably choose the option with the higher ROI.

Note especially that other examples (in sections further below) compare these cases again, using ROI along with five other metrics. The purpose of the multi-metric comparison, therefore, is to show that different "metrics" can reach opposite conclusions on which case represents the better business decision. (see " How does return on investment compare to other financial metrics?")

Example Calculations: Return on Investment for Two Competing Investments

Consider two five-year investments competing for funding, Case Alpha (A) and Case Beta (B). Which is the better choice in business terms? Analysts will probably look first at the expected net cash flow streams for these cases:

Notice two features of these cash flow streams that are apparent at once.

Firstly, Case Alpha has the higher overall net cash flow over five years: Alpha's total net cash flow of $140 is higher than Beta's figure of $120.

Secondly, however, cash flow timing in the two cases is entirely different. Beta seems to be "front-loaded," which means that more substantial returns come in the earlier years. As a result, the analyst will want to know how the timing differences impact several different cash flow metrics.

Note that the timing differences stand out clearly in a net cash flow graph:

Critical Decisions Deserve More Than One Metric

As a rule, decision-makers usually consider several financial metrics, not just one, when making important decisions. Consequently, to answer the question, "Which is the better business decision?," the analyst will probably review both cash flow streams with a set of metrics such as ROI, NPV, IRR, and Payback period.

Examples below will show, by the way, that Alpha's cash flow stream has a problem that is hidden by the net cash flow figures. Among these metrics, only ROI reveals this problem. Later sections show that ROI's unique insight has to do with the difference between profits and profitability.

Data Needs for Calculating Simple Return On Investment

To produce simple ROI, the analyst must have cash inflow and cash outflow data for each period, not just net cash flow values. The data tables above, therefore, must add columns with these figures, as well. Thus, with inflows and outflows now in the first two columns, the tables suffice for producing proper ROIs. Decision-makers should note especially, however, that metrics built from these numbers are "proper"-have clear meaning-only if the analyst confirms that these cash flows are due to the investment or action, and not to other causes.

Case Alpha Cash Flow Data

Calculating Simple ROI for Alpha and Beta

The right column of the tables has the simple ROIs as they stand at the end of each yearly period. Therefore, using the cash flow formula above and Case Beta data, ROI after three years stands at 35.9%:

In ROI Terms, Which Choice is the Better Business Decision?

Using simple ROI as the sole decision criterion, which choice, Alpha or Beta, is the better business decision? The question equates to asking "Which case has the better returns compared to costs?"

Comparing 3-year results from each case, Case Beta's 35.9% ROI is greater Alpha's ROI of -3.1%. As a result, when other factors are equal, Beta is the better business decision for a 3-year investment.

Consider 5-year results, Case Beta still has the higher ROI of 51.1%, while Alpha's 5-year ROI is less, at 29.5%. Consequently, when other factors are equal, Beta is also the better business decision when the 5-year investment life is in view.

In brief, the return on investment metric shows a significant advantage for Beta, even though Alpha has the greater 5-year net cash flow ($140 vs. $120). Why? Note especially that simple ROI derives from periodic inflows and outflows, not from net cash flows.

Comparing cases

Alpha has more substantial inflows and outflows.

Compared to Alpha, Beta's inflows and outflows are smaller.

As a result, Alpha brings in higher profits than Beta, even though Beta is more profitable than Alpha. Return on investment reveals that difference. NPV, IRR, and Payback metrics are blind to that distinction because they derive from net cash flow figures.

The Difference Between Profits and Profitability Is Important

The differences between profits and profitability can be significant for several reasons, which means, therefore, that some analysts consider an ROI figure mandatory for every investment review. Option Alpha may become less attractive in the investor's eyes, for instance, because he or she must first budget and pay for Alpha's more substantial total costs, no matter how large the incoming returns. As a result, the business decision maker may be unwilling or unable to do so.

ROI usage is usually legitimate when the metric can usefully address questions about investments and decisions such as these:

Should we make this investment, "Yes" or "No"?

Does the investment bring a net gain or a net loss?

What is the profitability of this investment? In other words, what is its return on investment?

Which of several competing actions is the most profitable? And, which option should we choose?

Also, however, it is important to remember to use ROI only when the appropriate cash flow data for calculating the metric are available. In brief, this means that ROI is legitimate only when all investment costs (cash outflows) and all returns (cash inflows) are known.

Regarding input data for the metric, therefore, it is helpful to two consider two different situations:

Return on investment can evaluate straightforward investment situations with only one cash outflow and one cash inflow.

More often, however, return on investment applies to investment scenarios with multiple cash inflows and outflows across a longer investment life.

Simple Two-Event ROI Example

For simple action scenarios with only one cash outflow and one cash inflow, ROI data needs are elementary. Here, the analyst needs only two numbers:

As a simple example, consider this question:

What is the return on investment for a gambler's winning bet on a horse race?

IIn this example, just before the race, the gambler places a $10 bet on horse #4 to win. Then, a few minutes later, horse #4 finishes first. The payoff for a winning bet depends of course on the "odds" in effect when betting windows close. The resulting ROI, therefore, also depends on the betting odds and the bettor can say, correctly, that these odds are the same as the ROI for this bet. Suppose in this case the winning bet pays $24. As a result, ROI is 240% for this single investment.

ROI = (24 - 10) / 10 = 240%

There is one cash outflow (the $10 bet) and one cash inflow (the $24 payoff). Both events are due to the investment, and the ROI meaning is therefore valid. Note especially that the "two-event " metric result does not take into account the timespan between outflow and inflow. Remember also that ROI itself is also unconcerned with investment risks or the advisability of making such an investment.

Using the Two-Event ROI Model

The two-event ROI model applies to other simple investment questions such as these:

What is the ROI on a non-coupon-paying bond purchase?

What is the ROI on a work of art, purchased as an investment?

Note that the two-event model assumes there are no necessary owner costs besides the single purchase cost.

Complex Actions: Multiple Cash Inflows and Outflows over Extended Time Period.

In business, the return on investment metric more often applies to actions that bring many cash flow events across many years. Case Alpha and Case Beta above are examples of the multi-event, multi-year ROI. Here, unlike the simple two-event case, the analyst must, therefore, know the length of investment life. Specifying the lifespan is necessary because this lifespan determines which data go into the ROI ratio.

Calculating Multi-Year Multi-Period ROI

For the multi-event, multi-year case, therefore, all that the analyst needs the following to calculate return on investment.

The known length of the investment life

Total investment costs (cash outflows)

The sum of returns due to the investment(cash inflows) across investment life

For Case Alpha, the 5-year inflow sum is $615, and the 5-year outflow sum is $475. As a result, the Case Alpha metric calculates as 29.5%.

ROI = (615 - 475) / 475 = 29.5%

This result is the "5-year ROI" for Case Alpha. Note that investment timespan is relevant because data were available for other time spans as well, such as 3-year metric. Note also, that even though total investment lifespan is important, the ROI result for the entire 5-year life is blind to the timing of inflows and outflows within the investment life. ROI, therefore, contrasts with other cash flow metrics such as NPV, IRR, and Payback Period, which are indeed sensitive to cash flow timing in the investment life. (See the section below, " How does ROI compare to NPV, IRR, Payback, and other financial metrics?")

Using Multi-Year Multi-Period ROI

In conclusion, multi-year multi-period return on investment figures of this kind can address an extensive range of business questions. For example:

What is the ROI for a college education?

Is there a positive ROI for professional training?

Will the marketing program show a positive ROI?

What is the ROI for buying a restaurant business?

When and Where to Avoid the ROI Metric

Analysts sometimes provide ROI figures when the ROI metric is not appropriate. Consequently, it is helpful to point out some few everyday situations where the analyst should refrain from using simple ROI.

Avoid ROI When Cash Inflow and Outflow Figures Are Not Available.

Analysts sometimes approach a cash flow stream starting with "Net cash flow" figures for each period. The Alpha and Beta examples show, however, that net cash flow figures alone do not reveal true profitability (simple ROI) for an investment. To build a proper ROI ratio, therefore, the analyst must uncover the underlying inflows and outflows. Nevertheless, some people, produce ROI figures anyway, using the negative net cash flows as "costs" and the positive net cash flows as "returns." As a result, the meaning of those ROIs is unclear.

Avoid Simple ROI When Comparing Investments for Different Time Periods.

A four-year ROI for one action does not compare appropriately to a seven-year ROI for another investment. Remember the advice, "Other things being equal, the better choice is the option with the higher ROI." However, when comparing metrics for investments or actions with different time periods, "Other things" are not equal. Consequently, ROIs for different time periods do not compare directly.

Avoid ROI When You Do Not Know That Cash Inflow and Outflow figures Are Due to the Investment, Only.

This issue becomes important when using ROI to address questions such as these:

What is the return on investment for a marketing program?

It may be relatively easy to measure costs due exclusively to the program. However, in a situation where gains such as "greater sales" or "increased profits" no doubt result from many actions besides the marketing program, it is therefore difficult to measure the portion of those returns actually due to the program.

Which business case scenario has the better return on investment?

Business case scenarios typically value future costs and benefits as estimated cash outflows and inflows. When calculating ROI for one or more proposal scenarios, however, the analyst must calculate the metric Fromincremental cash flow figures. The cash flow increment is the difference between a proposal scenario expected cash flows and a baseline scenario's projected cash flows. "Incremental" values are therefore necessary because these values, alone, measure cost and benefit impacts due only to the action or investment (See the section below, "How is ROI used for evaluating business case scenarios?")

Should You Calculate ROI From Discounted Cash Flow PV Figures?

Some people in business produce ROI metrics from discounted cash flow figure, that is, from inflow and outflow present values (PVs). This approach presents few computational problems because once you have the "present value" for each cash inflow and outflow, finding the metric itself is as simple as building ROI from non-discounted cash flow figures. Nevertheless, while the ROI math may be simple, interpreting PV-based ROIs can be more difficult. As a result, many businesspeople cannot explain the meaning or proper use of ROI when the metric results from PV figures. Consequently, the PV-based metric appears rarely.

Example Calculation Using Discounted Cash Flow Data

To compute a PV-based ROI, consider these cash flow figures for Case Alpha.

The present value PV for each inflow and outflow represents end-of-period discounting and a discount rate of 8.0% (see the article Discounted Cash Flow for more on PVs). As a result, under the PV-based approach, ROI derives from the sum of the inflow PVs (480) and the total for outflow PVs (398). Consequently, the PV-based 5-year return on investment for Case Alpha is 21.1%.

= (480 - 398) / 398 = 21.1%

While the result is ROI = 29.5% using non-discounted cash flow figures.

Using similar PV figures for Case Beta above, the sum of Beta inflow PVs is 293, while Beta outflow PVs total 210. As a result, the Case Beta, ROIpv is 39.5%.

= (293 - 210) / 398 = 39.5%

Note that ROI = 51.1% when using non-discounted figures.

Discount-Based Metrics vs. Metrics Based on Non-Discounted Data

Note especially that both PV-based metrics are lower than the same ROIs based on non-discounted cash flow figures. Understanding the reasons for these differences, therefore, is key to understanding what PV-based ROI says about investment cash flow streams.

The PV-based metric can turn out to be either greater or less than ROI from figures non-discounted data. The reason is that the greater discounting impact can fall either on the cash flow costs (outflows) or the cash flow returns (inflows).

In cases where more considerable costs come early, and more substantial gains come later, discounting lowers ROI. That is because the discount effect is higher on the late-arriving benefits, while the discounting impact is less for the earlier and more substantial costs.

For investments or actions where the more significant costs come later, and more substantial gains arrive early, discounting has the opposite effect, that is, discounting raises ROI. That is because, in this case, the discount effect is more significant for the late-arriving costs, while the impact is less for the substantial gains that arrive early.

Front-Loaded vs. Backloaded Cash Flow Streams

Alpha and Beta both have "investment curve" profiles because, in both cases, larger costs come early and larger returns come later. As a result, both cases have a PV-based ROI that is less than the ROI from non-discounted cash flows. In such cases, the investor can therefore properly say that ROI becomes more conservative, or more pessimistic when "investment curve" ROIs derive from PV data.

Notice especially, that the size of the discounting impact differs between Alpha and Beta. The discounting effect on Alpha is high while the discounting result on Beta is low. Changing to the PV approach reduces Alpha's ROI by 28.5% (from ROI = 29.5% to ROI = 21.1%), while the same change lowers Beta's ROI by 22.7% (from ROI=51.1 to ROI=39.5%).

This difference is due to the backloaded nature of Alpha's cash flow stream, compared to Beta's frontloaded cash flow stream. Even though both cash flow streams qualify as "investment curves," note that Alpha's more substantial cash inflows arrive later in the 5-year investment life), while Beta's more significant cash flows come earlier in the 5-year life. Alpha's ROI, therefore, suffers a greater discounting impact than Beta. This difference is due to the relatively late arrival of Alpha's substantial returns, which are discounted more heavily than Beta's early gains.,

PV-Based ROI Conclusions

An earlier Case Alpha example stated that the "ROI result for the entire investment life is blind to the timing of inflows and outflows within the investment life." Note especially, however, that statement does not apply to PV-based ROI because the size of the discounting effect is indeed sensitive to cash flow timing.

To some analysts, the examples above show how the PV based approach adds useful information to the ROI figures, while to others, the same examples show how PV-data confuse the metric's meaning. And, to many businesspeople, the discussion about front loaded and backloaded cash flow streams no doubt seems "theoretical," probably having little practical value for those making real-world investment decisions or for business planning. Therefore, In the interest of clarity and a meaning that is easily understood, many business analysts, investors, and decision-makers decide that bringing PV-based cash flow into the ROI picture "muddies the waters." Consequently, many prefer to avoid discounted data when using ROI, while leaving time-value-of-money concepts to the metrics meant explicitly to handle them: net present value NPV and internal rate of return IRR.

Analysts and decision-makers are free, of course, to use or not use PV-based data for ROI, as they wish. However, those who prefer PV-based ROI's should be sure that everyone involved understands how the ROIs are derived and also how to interpret the discounting effects.

ROI Results Alongside Other Metrics
Net CF, NPV, Payback, IRR and Growth Rate

Decision-makers and investors turn to ROI and other cash flow metrics such as NPV, IRR, and Payback to address questions like these: "What is investment profitability." And, Do the returns justify the costs? And, "What do we get back for what we spend?" In other words, they turn to metrics that take an "investment view" of an action or investment.

Note that several different financial metrics besides ROI serve this purpose. These "Investment View" metrics all compare the timing and sizes of returns and costs. Each investment metric (ROI, IRR, NPV, and Payback Period) has a different way to approach this task and, and as a result, each carries a unique message about the nature of the cash flow stream.

At the same time, however, each of these metrics is blind to particular characteristics of the cash flow streams- features that other financial metrics do see. And, also note, that the different "metrics" can disagree on which of the investments is the better business decision.

All of this leads to these conclusions:

Just one financial metric should not decide critical decisions.

When different metrics disagree as to which option is the better choice, decision-makers must examine the current financial situation to decide which to follow..

Financial Metrics for Alpha and Beta Cash Flow Streams

The different natures of Alpha and Beta results also stand out in the cumulative cash flow graph, below. "Cumulative cash flow" for a period is the sum of all net cash flows through the end of the period, the fourth data column in the tables above. (For more on "cumulative cash flow" and payback, see the articles Cash Flow and Payback Period.) Note especially that some people refer to cash flow graphs such as these as "return on investment curves."

Which case, Alpha or Beta, is the better business decision? The analysis shows that each case has points in its favor, compared to the other, and decision-makers must, therefore, weigh ROI results along with several different metrics to decide which is the best choice for them.

Five Financial Metrics to Compare with Return on Investment

When comparing different investment choices, here are some metrics to consider:

Total Net Cash Flow

When comparing cash flow streams like these, the analyst no doubt turns first of all to the financial metric total net cash flow. For a 5-year period, Alpha's cash flow total is higher at $140, while Beta's cash flow is less, at $120. Hence, Case Alpha outscores Beta on the total net cash flow metric. Therefore, the analyst can say that Alpha has the higher profits.

Future Performance

Future performance is not a financial metric, per se, but while reviewing total net cash flow, an astute analyst will notice that the two cumulative cash flow curves point to very different results for the years after year five. Notice especially that by Year 5, Alpha's cumulative curve is growing at a rapidly increasing rate while Beta's growth seems to be leveling off. If both investments have no impacts after year 5, of course, there will be no "future performance to consider." However, If the analyst believes these investment patterns will continue, Alpha, therefore, scores higher than Beta regarding likely future results.

Simple Return on Investment

Among the financial metrics, the analyst will probably turn secondly to the simple ROI figures for each case. Note especially that Beta's 5-year ROI is higher at 51.1% while Alpha's is less, at 29.5%. Therefore, Beta scores higher than Alpha with the ROI metric. As a result, the analyst may choose to report that Beta scores higher in profitability. The analyst may also note that Beta, in fact, shows greater profitability at every year-end through the 5-year period.

The Payback Period Metric

The curves above show roughly the point in time when cumulative cash flows "break even," that is when total inflows balance total outflows. This point on the time axis is the payback period for each case. Therefore, payback for Beta is better (i.e., shorter, or less) at 1.5 years, while Alpha's payback is worse (more extended) at 3.14 years. Other things being equal, analysts prefer a shorter payback to a more extended period. Why? The two most important reasons are probably these:

Analysts prefer the shorter payback period because it means they recover cost expenditures sooner, and these funds are ready for use again, sooner.

Analysts consider a shorter payback period less risky than a more extended payback period.

Regarding the payback period, therefore, Case Beta scores higher than Case Alpha.

The "Net Present Value" NPV Metric

When cash flow returns and costs extend two years or more into the future, almost all analysts will want to compare cash flow streams with the net present value (NPV) metric. Using a 10% discount rate, Beta has the higher NPV of $76.18, while Alpha's NPV is less, at $70.51. Consequently, under the time value of money rationale, Case Beta is worth more, today, than Alpha, even though Alpha will return more funds after five years. Case Beta, therefore, outscores case Alpha regarding the NPV metric.

The Internal Rate of Return Metric

Finally, in some settings, analysts will compare cash flow streams regarding the internal rate of return metric. The Internal rate of return (IRR) is the interest rate that produces an NPV of 0 for a cash flow stream. In reality, not many people in business are prepared to explain IRR figures in a way that makes practical sense for decision-makers and investors. Nevertheless, financial officers in some industries (such as financial services or insurance) rely on the metric for decision support. (See the article Internal rate of return for more on IRR, problems with IRR usage, and a recommended alternative, modified internal rate of return MIRR).

Here, Case Alpha has the lower IRR rate, at 28.9% while Beta's IRR is higher at 44.9%. Financial officers usually view an investment with an IRR above their cost of capital as a net gain and, here, both cases show IRR well above any company's cost of capital. However, when proposals compete for funds, and when other factors are equal, decision makers prefer the submission with the higher IRR. In conclusion, case Beta has the advantage regarding IRR.

Financial Metrics Comparison Summary

In conclusion, different financial metrics can disagree on which investment is the better business decision. The table below summarizes these differences for this example:

Green cells hold the better outcome for each financial metric.

From the metrics analysis above, which action, Alpha or Beta, is the better business decision? Four of the metrics in the table favor case Beta while two others favor Case Alpha. In conclusion, there is no "one size fits all" answer, except to say that ROI is a factor that decision-makers and planners will consider. However, they will probably also consider other factors, and then give different weights to each metric. In other words, they will probably appraise such things as:

Company business objectives

The current financial situation

Risks with each investment

Other actions that may be available

Using ROI to Evaluate Business Case Scenarios

Which business case scenario should the analyst recommend? Does the business case justify funding the proposal? ROI and other cash flow metrics (NPV, IRR, and Payback) often play a role in addressing such questions.

The business case looks forward in time, projecting cash inflows (benefits) and cash outflows (costs) under two or more scenarios.

Firstly, one scenario will represent the proposed action or investment.

Secondly, however, cases include a "Baseline" or "Business as usual" scenario. Note that the Baseline scenario projects results for the same cost and benefit items without taking the proposed action.

Consequently, the Baseline lets the analyst measure changes (from Baseline) that would follow from implementing the Proposal scenario.

When the analyst has two "full value" scenario cash flow statements (one for the Proposal scenario and another for the Baseline Business as usual), the analyst also builds an incremental cash flow statement. Figures in this statement represent the differences between the same cash flow items in the two full value scenarios, hence the term "incremental." As a result, the incremental cash flow values represent only cash flows due to the action or investment. These values are therefore legitimate data for finding scenario ROIs.

For more on business case cash flow, see Business Case Cash Flow Statement. Also, for ROI examples with business case cash flow, see Business Case Essentials.

Which Other Metrics Also Carry the Name Return on Investment ROI?

The return on investment name sometimes applies to several other metrics in financial statement analysis-where analysts assess a company's financial health and earnings results. Some people say ROI when referring to measures also known as:

Return on Capital Employed

Also, the term some people refer to cumulative cash flow results over time as a "return on Investment curve." Also, some people call still other cash flow metrics "return on investment," such as Average rate of return and even Internal rate of return IRR.

In conclusion, several different "ROI" metrics commonly used. And, the term itself does not have a single meaning that everyone in business understands in the same way. Therefore, when using return on investment figures, it is good practice to be sure that everyone involved understands precisely which version of the metric is in view.

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Return on Investment ROI Explain Defined Calculated Compared

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Return on Investment ROI is a popular financial metric for evaluating the results of investments and actions. ROI calculates as a ratio or percentage comparing net gains to costs, thereby providing a direct easily understood profitability measure. ROI is compared to other metrics: NPV, IRR, Payback.

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What is Human Performance Improvement?

The Human Performance Improvement process is very similar to Human Performance Technology. HPI provides you with a systematic process to follow on what can often be a not-so-systematic path.

In addition to identifying human performance gaps and their possible solutions, this standardized approach offers the ability to measure the success of your efforts and eliminate the guesswork that follows when a performance gap must be evaluated.

HPI is results-based and systematic. Rather than focusing on a 'wants-based' or 'needs-based' approach, HPI follows a 'results-based' approach to improving performance, distinguishing it from many HRD (human resource development) activities. The process is driven by a business need and a performance need, justified by the results of a cause analysis.

The Human Performance Improvement process is very similar to Human Performance Technology. HPI provides you with a systematic process to follow on what can often be a not-so-systematic path. In addition to identifying human performance gaps and their possible solutions, this standardized approach offers the ability to measure the success of your efforts and eliminate the guesswork that follows when a performance gap must be evaluated.

HPI is results-based and systematic. Rather than focusing on a 'wants-based' or 'needs-based' approach, HPI follows a 'results-based' approach to improving performance, distinguishing it from many HRD (human resource development) activities. The process is driven by a business need and a performance need, justified by the results of a cause analysis.

HPI for Your Business

The HPI process helps you to articulate your business goals, link these goals to human performance, diagnose the current state of performance in the organization, find the root causes for performance deficiencies, implement solutions, and evaluate the results of the interventions.

Being business focused means having a clear understanding what your organization's strategic priorities are and using those priorities to guide your management decisions.

The process of analyzing performance begins with a analyzing your business, which allows you to focus on the goals for your business.

While you may believe that your business goals are clear and understood by everyone within your business, this assumption is often wrong. If your business is typical, most of your employees will have difficulty stating what your business goals are and identifying how their work assignments affect those goals.

HPI Begins With Your Goals

A business-focused approach to applying HPI to your bottom line begins by identifying what the key business goals are for the client or organization. You business goals could include:

Goals for the entire organization,

Goals for a department within your organization,

Goals for a specific team or unit, or

Goals for a function.

In a large and complex organization, there are usually a variety of business goals at different levels of the organization.

Individual Performance and Business Goals

Performance by individual's results in output for your business or organization, but HPI begins at the end of the process, considering the business output or goals of the business, and then applying those goals backwards to the departments, teams, and individuals who will work towards satisfying those goals. The process of identifying your business goals is critical to applying HPI to your business.

Once you have identified your goals, it's important to verify that you have set a realistic target. Your business goals should be:

Quantitative, meaning you should have a definite understanding of when the goals have been met, and time limited, meaning that you have a definite schedule when you can ascertain whether the goal has been achieved.

Individual Performance and Business GoalsPerformance by individual's results in output for your business or organization, but HPI begins at the end of the process, considering the business output or goals of the business, and then applying those goals backwards to the departments, teams, and individuals who will work towards satisfying those goals. The process of identifying your business goals is critical to applying HPI to your business.Once you have identified your goals, it's important to verify that you have set a realistic target. Your business goals should be:Quantitative, meaning you should have a definite understanding of when the goals have been met, and Time limited, meaning that you have a definite schedule when you can ascertain whether the goal has been achieved.
Gap Analysis Aims At Improving Performance
The process of analyzing performance always begins with business analysis, which allows us to identify the gaps in performance. HPI takes into account the Influences that affect your business, the Tasks that form the daily workload in you business or departments, the Processes that are needed to deliver the Outcomes desired, and the final Goal that your business seeks to satisfy. The difference between the beginning point (current performance level) and the endpoint (desired performance level) is the performance gap.

Business Analysis

The first step in Gap Analysis is to determine your business goals and clarify the relationship of the goals to the performance your employees' performance. The HPI analysis must start by identifying the key business goals, and then consider the performance gaps that can be addressed to help your business work towards those goals.

Performance Analysis

Once you have determined what organizational goals are not being met because of a performance gap, you can take steps to close that gap. This will result in the desired performance state.

Working To Identify Performance Gaps

The gap analysis process is accomplished through discovery and inquiry:

Who is the customer, or who is affected

Identify business goals

Whose performance is the problem

What is the actually performance level

What is the desired performance level

Determine what performance is critical to achieve those goals,

Determine which performance outcomes have significant gaps,

Figuring out what has caused those gaps.

Prioritize Your Performance Gaps

Note that although you may have identified a performance gap, it doesn't mean it's worth closing that gap. The best value to your business is to focus on performance gaps that will make an impact in reaching your business goals.

The next step is to determine the priority of the gaps:

How important is the identified gap?

How often does the gap occur?

How costly will it be to resolve the gap?

Cause Analysis
Overcoming Assumptions
It is important to understand what your goals are, and to see how the steps you are undertaking will work to complete the goals. It is critical to suspend solutions until the true root cause(s) is identified. We do not presume that training is the solution for a given performance gap. Cause Analysis is used to determine why the performance gap exists, then we chose the most effective intervention.
Defining Cause Analysis
Cause analysis starts at the end of the business process, identifying the goals of your business and then identifying the contributions of the departments, units, and individuals that produce the outcomes that satisfy those goals.

Once the goals and outcomes have been identified, Cause Analysis considers the processes that produced the outcomes, the tasks that make up the processes, and finally the initial influences that affect the accomplishment of each task.

Causes of Performance Gaps

The cause behind a performance gap might be training, but often there are other causes:

A lack of knowledge or skill on the part of workers can often be corrected with some coaching, job instruction, a job aid or a support tool

A lack of resources to do the job (human, physical, financial)

Aproblem with the structure or process of the work flow

A need for more information - which might be in the form of just being able to access the information when needed, just when it is needed

A lack of leadership or a change in leadership

A lack of consequences or information regarding the consequences of poorly done work

Motives or expectations

Inadequate feedback

Lack of capacity by an individual to perform, due to poor hiring practices, selection practices or promotion policy.

Cause Analysis Tools

Observation is a powerful method of identifying key performance, because it enables you to see how one employee or department has better results than another employee or department. This is a similar process to identifying what the core competencies are within your business.

Other tools we use include:

Structured brainstorming

Fishbone diagrams

Five Whys

Surveys

Interviews and focus groups

Review of performance data and other data

Records review (e.g. performance appraisals, hiring process, maintenance records, etc.

Levels of Causes

Performance gaps can occur in three levels of the organization:

Organizational Level

Process Level

Job/Performer Level

Systems Thinking

One of the cornerstones of HPI is the concept of systems thinking. Organizations are complex systems! Taking a holistic view of the entire system is critical if performance improvement is to be achieved. Merely tweaking various parts of the system will yield only marginal or unsustainable results.

Geary Rummler and Alan Brache have defined the three levels of performance, along with the three factors that determine effectiveness at each level.

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The Engagement Effect: Human Performance Improvement

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The Human Performance Improvement process is very similar to Human Performance Technology. HPI provides you with a systematic process to follow on what can often be a not-so-systematic path. In addition to identifying human performance gaps and their possible solutions, this standardized approach offers the ability to measure the success of your efforts and eliminate the guesswork that follows when a performance gap must be evaluated.

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EXCLUSIVE: $10 Course Promo Expires June 30, 2017 Is leadership something you're born with, or can it be learned? The answer might shock you. It turns out, researchers have discovered that leadership is only 30 percent genetic. And a study conducted by the University of Illinois, Urbana-Champaign, found that students were able to significantly improve their leadership skills through a 15-week academic course.

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Implementing an Employee Training & Development Program | Learning, Training & Development | HR Toolkit | hrcouncil.ca

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Employee training and development needs to suit your organization's context, job descriptions, employment contracts and collective agreements. When selecting employee training and development methods, it is important to remember the learning process. There are many ways to provide employees with learning opportunities, including:

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The business plan is a live document that serves to help you to run your business towards your business goal achievement. It is not something to stay in the drawer and take dust on it. It is not something that you need to set and forget. You must remember that the business world is a world that is changing continually. Because of that, you need to measure business plan implementation results and adjust your plan from time to time.

Entrepreneurs are people that are always full of business ideas. The ideas are something that pushes forward all businesses. You, as an entrepreneur, maybe don't have those ideas in a time when you have prepared your business plan. If you know that those ideas will increase your business success, you need to cover those business ideas into your business plan.

You can't expect that your business plan will be a 100% accurate because it is based on historical data, analysis, and forecasts for the future. Mistakes will be something normal and that is reasonable. But, mistakes, because you are not measuring the implementation of your business plan, are not reasonable and can bring catastrophic effects on your business. Because of that, you must compare what you have planned and the real numbers. Also, you must find the differences and causes of those differences.

In such a way, you can implement changes on the go as you start implementing your business plan and will improve your planning process. So, you will learn to implement many improvements in the next planning cycles.

If you succeed in implementing the pieces of advice I will give you here, you will not only implement improvements of the current and next planning processes, but also the improvement in your whole business processes.

Elements You Need to Analyze and Compare When You Measure Business Plan Implementation Results

What are those most important elements that you need to analyze and compare when you measure business plan implementation results?

Before we start with the measurement elements of your business plan, be sure that you have really operation planning process in your company. Follow this ultimate guide for building basic business plan template. Also, you can use these 30 steps that will help you in writing your business plan and following business plan mindmap.

Here, I will cover some basic points of comparison that you need to use when you measure business plan implementation results:

1. Your Business Goals Achievement Results

Your business plan starts with your business goals. You must ask yourself and give answers to several questions. Have I accomplished the business goals that I set for the previous year? Will my current work enable achieving those goals?

This is important because if your goals are not achieved, you must change something in your current work. So, if this is the case, you will need to discover what is the best things you need to do in order to achieve the goals.

Sometimes, you may find that you are not in the situation to do something more. In such a case, the best possible thing you can do is to change your goals to become more achievable. Use SMART goals when you try to change goals in your business plan.

Remember that you set up your goals with the purpose to achieve them. Use this guide to set up your business goals and then this 7 steps framework to achieve all your business goals.

2. Your Products/services

Do you have introduced new products or services that you don't have listed in your business plan? What are the results from comparing your products or services with those of your competitors? Do you have plans to introduce new products or services that you don't have noted in your business plan? The products or services part of your business plan is one of the most important elements of your plan. You must continually follow them.

Don't forget to always work on adding more value to your customers inside your products or services. Here is how you can add more value to your products and services.

3. The Market Where You Compete

Are there the same trends on the market as you have predicted in your business plan? Most of your business decisions will rely on the market conditions. You must follow your market if you want to stay there because if you don't follow the changes in the market, the market will reject you.

Sometimes customers will simply stop buying from you. Here are 5 things you can do when this happen.

4. The Industry of Your Business.

Are there crucial changes in your industry that was not predicted in your business plan?

Every industry has particular characteristics. For example, IT industry has characteristic of quick and big changes in the shorter time period. If you want to stay in the trend of your industry you must observe all changes in your industry.

If you want to analyze your industry properly, answer these 40 questions.

5. Your Marketing Strategy

Is there some change in your marketing strategy that is not covered by your plan? How are you setting up your prices, promotions, and distributions?

All of these elements are categories that can change over time. These elements have an influence on your sales, current processes, and management. Because of that, you must include these changes in your business plan.

Be sure to escape following 11 reasons for marketing failure.

6. Your Sales Achievements

Are your sales numbers same as you predicted in your business plan?

Your current sales numbers will impact your profitability, cash flow, type of marketing activities, employment, etc. This is an important element and your business rely on it. So, you need to measure and make proper changes according to the results of the measurement.

7. Your Marketing Plan

Do you implement some marketing changes that will require some changes in your marketing plan? If you have such changes, update them into your business plan.

8. Your Organizational Structure

Is your organizational structure the same as you have noted in your plan. Is management team the same or not? What's going on with the employment plans?

These are important questions you should ask yourself as a part of the measurement process of implementation of your business plan.

9. Profit/Lose

Is your profit/loss statement same as you have planned to be in your current business plan?

This is an important question for you because it will show are you moving in the right direction when it comes to your profitability. Knowing this you will be able to quickly solve many problems related to your profitability.

10. Your Cash Flow

Is your cash flow as you have planned to be?

11. SWOT

Are your strengths, weakness, opportunities, and threats the same as you note in your plan? Is there the change in their influence on your business?

The Process You Need to Use When You Measure Business Plan Implementation Results

These are the basic activities that you must do in the process of measurement:

Control

Compare

Find causes for the differences

Solve all problems through eliminating negative differences.

In the following picture is a flowchart for the activities you must perform when you measure business plan implementation results and compare different current business plan elements with planned.

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How to Measure Business Plan Implementation Results?

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You must remember that the business world is a world that is changing continually. Because of that, you need to measure business plan implementation results and adjust your plan from time to time. Here are the elements you need to measure and the process you can use.