Measuring Return on Investment (ROI) of Virtual Teams

Return on Investment is a popular analytical tool which is used to measure the benefits relative to the cost. There is an ongoing debate in the business world on which is better – co-located or virtual teams. Though there is no black and white answer to this question. But the key lies in carefully assessing the business situation and matching the right type of team. Applying ROI to the virtual team context is a challenge because it is not possible to assign monetary values to each of the benefit and cost factors. For the purpose of this discussion we have identified certain relevant costs and benefits factors of virtual teams as well as we have considered backward-looking or retrospective ROI which measures the value of the impact of team’s activities once completed.

Principles of Calculating ROI of Virtual Teams

1. Only such costs and benefits should be included which are a significant fraction of the total costs and benefits of the team work, say at least 5%.

2. It is better to benchmark the ROI of virtual teams to that of the traditional co-located teams to accomplish similar set of tasks and goals.

3. The ease with which a particular costs and benefits factor can be realized also should be considered to determine the inclusion of that factor in the overall ROI calculation.

4. Formula for the calculation of ROI = Benefits/Costs.

Elements for Measuring ROI of Virtual Teams

1. Objective Business Outcomes refers to the factors that are linked directly to the bottom-line of the business (revenue & profit). This includes productivity, quality and customer satisfaction. Virtual teams bring together the best talent resources from across the globe to work on the project. Better customer satisfaction can be gained by placing the virtual team member closer to the client. This has positive impact on the bottom line. The only drawback is difficulties in coordination among the team members due to time zone, cultural and other differences.

2. Subjective Business Outcomes refers to the factors that indirectly contribute to the bottom line of the business. Though many practitioners say that these should not be included because it is very difficult to arrive at their monetary impact. But research studies argument that these are potential benefits and costs which cannot be ignored. These are creativity & innovation, and organizational learning through best practices. Very often, new product development teams consist of virtual team members - this is the classic example where the subjective business outcome of innovation and learning are dominant force.

3. Resource Input - In addition to the above stated outcomes, effective functioning of virtual teams require certain inputs such as travel, training/coaching, use of technology, personnel and other related admin costs.

Conclusion

Keeping in mind the current hyper-competitive market, it is impractical to solely rely on either co-located or virtual teams for doing the work entirely. On the actual grounds, organizations divide the work wherein some part is done by co-located members and some of it by virtual team members. This helps them to enjoy the easy & faster coordination of co-located teams as well as innovation & best practices learning from virtual members. ROI measurement comes as a handy tool for leaders and managers to take decisions related to alignment of team outputs with strategic intent as well as allocate resources accordingly to reap maximum benefits.