Public sector organizations have been aware of cost-benefit
analysis (CBA) for centuries. CBA was originally developed to
assess the feasibility of large public projects, first in France in
the 1600s, then in the United States in the early 1900s. Public
sector organizations have since applied CBA to a variety of
programs including education, training, and development.
Traditional CBA, however, looks only at long-term benefits and
often overlooks other important variables that could influence
those benefits.
Today, public sector organizations are jumping on the ROI bandwagon
for a number of reasons. First, the ROI methodology most widely
used in organizations builds on traditional CBA and generates six
types of data - reaction, learning, application, impact, ROI, and
intangible benefits - thereby providing a balanced view of program
results. Second, the ROI methodology includes a critical step that
accounts for other influences to isolate the effects of the
program. Third, with limited resources and competition for funding,
public sector agencies need to show short-term impact as well as
long-term benefits of many programs. Fourth, the Government
Performance and Results Act of 1993 and the President's Management
Agenda 2002 require federal government agencies to reconsider
current program evaluation processes and focus on results and
outcomes rather than activities.
Implementing ROI in public sector organizations is not without
challenges. Because most public sector organizations do not
generate revenue the perception is that ROI cannot be calculated.
However, while ROI is based on benefits that have been converted to
a monetary value, it addresses more than revenue. Measures of
output, quality, cost, time, work habits, work climate, and
attitude are also included in the ROI process.
While public sector organizations are concerned with the value that
ROI programs bring to the organization, some ROI programs affect
not only the organization, but also taxpayers, legislators, and a
multitude of constituencies. So, in implementing ROI, public sector
organizations must be careful about defining whose ROI is being
measured.
Finally, many public sector programs will continue whether or not
there is a positive ROI. Even when this is true, a comprehensive
evaluation that includes ROI provides evidence of the effectiveness
of the program as it currently exists and provides insight into how
the program may be adjusted to enhance results.
The use of ROI is growing in the public sector arena as government
agencies, nonprofit organizations, and community development
entities work to show the value of their programs. For a more
in-depth discussion about ROI in the public sector, visit
http://www.roi.astd.org/tools_and_resources/news.aspx#whitepaper.pdf.
Patti P. Phillips is the author of The Bottomline on ROI and editor
of Measuring ROI in the Public Sector. She can be reached by email
at thechelseagroup@aol.com.