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Intangibles Of Cost Benefit Analysis
Posted by Anonymous on
7/26/2011 at 7:57 AM ET
At work we are trying to carry out a cost benefit analysis for a proposed Corporate Social Responsibility campaign. To be honest i have very little experience in the cost benefit analysis so would appreciate any advice. Many of the costs can be calculated financially (eg wages, promotional materials, venues etc...) however i am struggling to understand how to quantify the benefits as it is hard to put a figure on things like, increase in repeat custom, brand equity and future sales as most of these are intaglible.
Am i correct in thinking that even though this is a CSR project proposal the figures still really need to indicate a overall positive figure.
All help appreciated
7/30/2011 at 5:43 AM
can anyone help?
7/30/2011 at 7:07 AM
Your corporate social responsibility program may NOT need to show a positive ROI in the traditional sense. ROI calculations are intended to be a common yardstick for projects that are competing for scarce resources and that are expected to yield a direct financial benefit. This comes from the old thinking that the only reason a firm exists is to generate a profit for the stockholders.
Sometime companies do things just because they are right to do, or because they are important for some non-financial reason. You may still want to compute a cost/benefit ratio for them so you know what you're giving up (vis a vis other uses for the funds) and what you're getting for that give-up. But the "what you're getting" part may not be entirely financial.
So, for example, you might say, we're not going to purchase that new equipment for the plant this year, because we want to fund 3 additional teachers at the local school, where it will benefit our community.
There is no immediate or direct benefit from the 3 extra teachers as there would be from the new equipment. But that doesn't mean you shouldn't do it just because you can't compute a hard cost/benefit ratio.
And trying to justify the 3 extra teachers as a long-term benefit for the company is going to take more effort, and have greater uncertainty, than it's worth. If it's right to do, you just do it. Recognize what you're giving up (i.e., the cost/benefit of the alternative use of resources), but don't make ROI the only thing that determines your decision.
8/1/2011 at 3:41 AM
While I agree with Michael, I realize many companies do want to calculate an ROI for their CSR projects. Together with eg sponsorship, such projects are among the hardest to quantify, but it has been done. My advice:
1) start with the tangible business goal, i.e. profits or sales. So you are right on by aiming to link it to eg repeat custom, brand equity and future sales
2) work backwards what is needed to achieve such goals, eg to make a purchase, prospective customers need to be aware of the company, find its offerings relevant, consider it and prefer it for purchase (any sales funnel will do), to repeat purchase/recommend the company, customers need to be satisfied with the product/service, but also feel good about the company
3) think through how the CSR project may improve any of the above factors and put a reasonable assumption in numbers, eg:
a) thanks to the CSR project, awareness will increase by 5%, which leads to 1% more sales working through the funnel
b) everybody knows our company, but many do not end up purchasing/repurchasing because competitors offer the same basic product often for a cheaper promoted price. Existing customers' repeat purchase will increase by 5% knowing that their money will partially benefit this CSR project and feeling good about our company in general
3) set up the measurement system to factually check your assumptions, adjust if necessary and rerun.
While not easy, I have personally helped companies go through this process, and am willing to email you specifics. As an interesting perspective from a firm i am not working with, check out how Forrester Research quantities costs and benefits of blogging:
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