Stephen Bounds discusses a better way to guide decision-making through RROI ranking of scenarios using propensity scoring of relevant events and Monte Carlo simulations.

1. Relative Return on Investment
Having the right conversations about information value

2. Stephen Bounds
Executive, Information Management
stephen.bounds@cordelta.com
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3. Do any of
these sound
familiar?
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We have a great IM
plan, but my manager
always thinks that
something else is
more important…
No one cares
about anything
until a crisis hits!
We educate people, but they
nod their heads and then
revert to their old habits
Why don’t
people take
IM seriously?
Licensed under CC BY-NC-ND

4. Psychological
distance
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We think more concretely about things that
are nearer to us, and more abstractly about
things that are further away
Temporal distance
Whether an event is a long time
in the future or the past
Spatial distance
Whether you are separated by
a large geographic distance
Social distance
Whether you feel you know
someone well or not
Hypothetical distance
Whether you think an event is
likely to occur or not

5. Proximate and
ultimate goals
Starting
point
Proximate
goal
Proximate
goal
…
Ultimate
goal
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6. Typical
Information
Management
goals
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 Right information to the right person at the right time
 Faster information discovery
 Better organisational governance
 Fewer decision making errors
 Better knowledge retention

7. Proximate and
ultimate goals
Starting
point
Proximate
goal
Proximate
goal
…
Ultimate
goal
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Most information
projects sit here

8. 6 ways to
optimise
outputs
Can we use information better to change … ?
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Category Description
Fixed cost the cost of turning the lights on
Incremental cost the cost of one more item
Cycle time time for one item start to finish
Throughput items per unit of time
Quality absence of errors and defects
Excellence going above and beyond to meet individual needs or do “cool stuff”

9. 8 ways to
reduce waste
(Lean)
Category Description
Transport Moving people, products & information
Inventory Storing parts, pieces, documentation without need
Motion Bending, turning, reaching, lifting
Waiting For information, instructions, equipment, or parts
Over production Making or doing more than is immediately required
Over processing Completing to a higher standard than is necessary
Defects Needing to rework, scrap, or redo (products or information)
Skills Capabilities present but not used, tasking inadequately trained staff
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Can we use information better to reduce waste in … ?

10. RROI =
Relative
Return on
Investment
 Industrial re-engineering focuses on predictable outcomes
 Time & motion studies = do X, result isY, cost is Z
 Return on Investment (ROI) is known per event
 RROI provides a way to quantitively assess and
compare indirect outcomes from projects
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11. How it works
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Identify potential
initiatives
Target ultimate
goals
Quantify
assumptions
Perform benefits
modelling
Rank RROI and
agree on action

12. What can be
done
vs
What will
it do
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13. Ultimate goal
measurements
 Any benefit to be quantified as “takes X less seconds to doY”
should be treated with extreme caution unless it leads to:
 lower fixed or incremental costs (eg  assigned staff)
 decreased cycle time / increased throughput (eg  service levels)
 Increased “excellence” should be aligned to the principles of the
organisation, and still quantified, eg
 higher customer satisfaction scores
 lower staff absenteeism
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14. How will the
needle move?
NB: measures can be financial or non-financial. For global interventions,
separately model business outcomes across multiple teams / sections.
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15. Caution:
Power law
 Normal distribution
(bell curve) only describes
products of true randomness
 Power law distribution
(80/20 curve) applies for most
social / economic patterns,
especially where past state
influences future
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16. Propensity and
variability
 Understanding propensity (likelihood of occurrence) is key
 Power law environments with low transaction volumes can lead to
highly variable outcomes
 eg if you have 200 transactions a year, and only 1 in 1000 leads to
catastrophic failure, there is a strong temptation to act as if the
possibility for catastrophic failure does not exist
 Variability must be explicitly flagged with management to set
expectations
 A “good year” doesn’t mean things are working
 A “bad year” doesn’t mean that the process is broken
 If your model is sound, it is correct to measure behaviours, not
outcomes in the short to medium term
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17. MonteCarlo
modelling
 Monte Carlo simulations build a model of the world and use this to
simulate outcomes.
 Re-running the model multiple times shows both variability and
expected (average) results.
 Can approximate real-world results
without a known algorithm, eg
calculating area of a circle:
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18. Recap
So far we have:
1. Proposed and costed our initiatives
2. Identified the business benefits
3. Quantified expected benefits through modelling
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19. RROI ranking
(finally!)
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Financial RROI evaluation
Non-financial RROI evaluation

20. Now what?
 RROI provides a powerful tool to link indirect benefits to real
outcomes
 Leads to better conversations about assumptions and
expectations
 Relies upon a model of all futures, not a prediction of the future to
make smarter choices
 After model is agreed, the shift can focus to immediate measures
and accountability
 Once armed with actual results – review outcomes and if
necessary, refine your organisation’s model of the world
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21. Questions?
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