Intuitively, you know it’s the right move. Aligning the entire business on specific key measurable outcomes delivers outsized return on the metrics you value most. Each team’s radical ownership of the outcomes flips them into a mode of constant value delivery. This mindset is what drives the value within some of the world’s largest organisations such as Intel, Google, LinkedIn, and many others.
Unfortunately, while the decision is clearly logical, on occasion you’ll need to substantiate this for the purpose of government grants and other bureaucratic processes. A reality of business. So, if you’re needing to substantiate the value, then this guide is for you!
OKR Value Creation
Surveys by the likes of KPMG and the PMI indicate only 50% to 60% of projects deliver the expected value. Such targets as based on conservative measures, meaning the vast majority of projects fail to create outsized returns for the business.
This is where OKR differs. OKR uses leading indicators to predict the performance of a product, project, or improvement. This enables corrective action to be taken early to maximise value creation or bring forward the decision to abandon the initiative where value is not expected.
The target teams set to achieve the OKR is 70% as all targets are set as a stretch. What this means is over time, teams calibrate their goals to be stretched which lifts productivity, and the OKR constraints of being valuable leading indicators ensure value is generated early.
Calculating the ROI
Teams working on OKRs deliver 70% of the value they set out to achieve. These are stretch targets, however taking a conservative view when compared to traditional project success (50-60%), we can assume at least a 10% improvement in the value delivered.
ACME have projects expected to deliver $20M in new business annually. We can calculate the benefit in two ways:
- Conservative calculation: Presuming the expected 10% to 20% better performance with OKR we can expect a benefit of $2M to $4M for the year. OKR integrates with existing goal setting and planning cadences, so this is at no additional ongoing cost. This is where the ROI becomes an obvious choice. Depending on the amount invested to build the OKR capability (let’s assume $200K), then we can expect an ROI of 900%.
- Stretch calculation: Teams operating with OKR would in fact set OKR metrics to achieve $28.57M in growth given that $20M is the non-stretch target. Compared to traditional systems, we, therefore, deliver $8M more value, or a benefit of 3,900%.
What does this not factor in?
Many intangibles cannot be calculated, and therefore cannot be factored into the ROI. There is a significant body of research behind these benefits and the value created for the business, however, that is beyond the scope of this article.
- Reduced waste: The State of OKR Report indicates a significant reduction in the volume of wasted effort. This comes in the form of continuous process optimisation reducing rework, fewer priority changes, and most importantly less work on unimportant priorities.
- Execution uplift: Google has proven clear outcome-based goals are critical for creating a high-performing team
- General operational improvement: OKR creates significant benefits across the business beyond minor projects. As per Google’s research, teams working with OKR can expect better performance, efficiency, and productivity.
Can tools help enhance the ROI?
One of the most important parts of OKR is the alignment and collaboration across the business. For small teams, this is pretty easy to do via a shared spreadsheet (such as our Google Sheets OKR Scoring Template). The benefit of a dedicated OKR tool is minimal, although it can help with regular reminders and easy reporting on check-in completion.
As much as some would hate to admit it, the reality is that for larger organisations, a dedicated tool is insanely valuable. This is for 3 main reasons:
- It simplifies the coordination of OKR setting with better reporting and visibility, increasing the likelihood of OKRs being set effectively.
- It provides a simplified means for people to update progress throughout the cycle, increasing the likely hood it will be embedded and drive actual outcomes. This also fosters improved collaboration.
- Learnings are captured during the OKR cycle ensuring business execution is improved and lessons can be exploited in the future.
Calculating the ROI of the tool is therefore very dependent on the success of OKR being embedded and owned by the teams. Consider it as a part of the cost base, rather than an investment in its own right.
Taking this further
Now you know what are the key financial benefits of OKR. It's a lightweight framework that delivers incredible value. While it's impossible to calculate the exact benefit of embedding OKR, you can come up with a very clear forecast yourself. The key idea however is ensuring you engage everyone on the change journey. We can easily get distracted by the numbers and forget what makes this really successful.