Monday, May 24, 2010

ROI for Setting Goals

Return on Investment (ROI) is a used to evaluate the efficiency of an investment. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio.

What does that have to do with those of us who don't have a lot of money to invest? I think that ROI can be a useful measure for life in general. Does the benefit I get from (whatever) outweigh the cost? For instance, does the benefit of buying that new gadget outweigh the amount of money it would cost me (and the requisite number of hours it took to earn that money/the use that money could otherwise be going to or whether I have that money to begin with or will have to be in debt for it and so have to eventually pay back that money with even more hours of work to make up for the interest on the debt)?

Even for nonfinancial matters the ROI can be useful. In addition to helping me determine whether to buy big-ticket items, I can use it to evaluate different projects. Will the ROI be high enough to make up for the work I will have to put into it? Will volunteering with this group be rewarding and enjoyable? Does the politics of this group make working with them less rewarding and therefore decrease the ROI too much?

The same thing can be said for goals. I am a big believer in goal setting (as you can see from other posts) and I love lists of goals. However, I am beginning to see that the ROI from creating long lists is too low. I don't really get much out of having some of these lists. I spend a bunch of time managing the lists but don't get much else done. However, I do believe that having goals has a ROI that is high enough. I just need to learn not to get too wrapped up in making lists of goals and managing them (which takes away from the time to actually DO those goals).

Some of my goals are also rather minor and probably don't have much benefit to go against the work. Sometimes good enough may be enough. Sometimes the return on that extra bit of work one could put in the project is not enough to warrant the extra time and effort. It's probably part of that 80/20 rule I hear about so often. 80% of the result comes from 20% of the effort. That scrapbook I've been putting together as a gift? I could finish it in one day, if I wasn't so hung up on what else I could do to make it "perfect." But really the ROI on that extra effort would be almost nothing. It's close enough to perfect to make the person getting it happy. And she will be even happier just to have it done (since it is a bit later than I meant it to be).

I think we need to evaluate more things in our lives with this ROI calculation. Will the benefit of this purchase be big enough to warrant that amount of money? Is the time I will have to spend on this project (which will take me away from other projects and opportunities) worth the feeling of accomplishment I might get from doing it? Will this project have any benefit to me or am I doing it simply out of a feeling of obligation? Does this group's behavior make them less enjoyable to volunteer with and therefore reduce the benefit I receive from working there? Hard questions sometimes, but worth answering.

What sort of ROI question would help you decide whether or not to do something in your life?

1 comment:

  1. It makes a lot of sense to focus more on your goals and less on managing lists of goals. You also make a good point about not needing to make everything perfect - that the difference made by getting something 'just right' isn't usually worth the extra effort.


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