When you’re planning an important change in your team or organisation, you might calculate the expected return on investment (ROI) before you go ahead. But there’s another thing you should calculate – and most people don’t.
I’ll explain this using something we all know.
It’s been more than two years since we first heard of a novel coronavirus in China, and COVID-19 isn’t finished with us yet.
Given the massive impact it’s had on our lives, how much would do you think the world should be willing to pay to prevent another pandemic? Billions of dollars? Trillions?
According to Bill Gates, it would only take a billion dollars a year to make COVID-19 our last pandemic ever.
In his latest TED Talk ‘We can make COVID-19 the last pandemic’, Gates – whose foundation has already contributed hundreds of millions of dollars to fight COVID-19 – recommends we create an international ‘GERM’ (Global Epidemic Response and Mobilisation) team of experts to detect potential outbreaks and prevent them from becoming pandemics.
The cost to create and maintain this team? A billion dollars a year.
A billion dollars is a drop in the ocean compared to the cost of a pandemic. Already, this pandemic has claimed over six million lives (according to Our World In Data) and will cost the world economy almost 24 trillion dollars by 2024 (according to the IMF).
So a billion dollars isn’t much at all. Heck, our two major political parties have already promised many billions of dollars in their election campaigns!
So will we do it?
Unfortunately, I think not. Because we’re really bad at assessing cost of inaction – or COI.
When evaluating a plan, return on investment (ROI) is only one part of your assessment. Unless you also calculate the cost of inaction, or COI, the ROI alone doesn’t have enough context.
If you’re driving on a highway and meet heavy traffic, you calculate the ROI of taking a slower but less congested side road. But if the highway is taking you directly into the path of a bushfire, the COI is so high the ROI becomes irrelevant.
The cost of inaction is often higher than you think, and can hurt your performance in different ways. Consider these questions:
- Friction And Leakage: What inefficiencies are we tolerating, and how much do these inefficiencies end up costing us in the short term, medium term, and long term?
- Quality Overheads: What preventable errors and mistakes are we making, and how much does it cost to inspect, detect, review, and rework because of these errors?
- Opportunity Lost: What opportunities are we missing because we spend too much time, money, and other resources battling our current systems?
- Sunk Costs: What are we doing poorly because we have invested so much in our existing systems, which might no longer be the best options for the future?
- Emotional Toll: What is the emotional cost to people who have to work with slow, cumbersome, complex, and flaky systems – especially when they know better solutions exist?
- Competitive Weakness: Where are we losing ground with branding, positioning, market share, and growth because our competitors are investing in better systems?
ROI answers the question, ‘What are the benefits of this change?’, and COI answers the question, ‘What is the cost of not changing?’ You must ask both; otherwise you make the decision with only half the information.
We already made this mistake once.
In 2015, in Bill Gates’ previous TED Talk, ‘The next outbreak? We’re not ready’, he predicted almost exactly the COVID-19 pandemic scenario we face now.
He ends that talk by urging us to take action:
“Now I don’t have an exact budget for what this would cost, but I’m quite sure it’s very modest compared to the potential harm. The World Bank estimates that if we have a worldwide flu epidemic, global wealth will go down by over three trillion dollars and we’d have millions and millions of deaths …”
This is exactly the point I’m making about COI: When making a decision, assess the cost of inaction.
Use both ROI and COI to assess decisions.
ROI is often a valuable indicator, but don’t stop there. Always ask questions about your COI, so you can fairly assess the decision.
This is not easy to do. Most of us have never been taught to count the cost of doing nothing, so it doesn’t come naturally. That’s why I’m not optimistic we’ll do enough to prevent the next pandemic – even after living through the devastation of this one.
At first, you’ll have to consciously force yourself to calculate COI for every important decision. To help assess your COI, ask yourself – and your team – these COI questions:
- ‘What is the cost of not changing?’
- ‘What is the cost of not doing anything?’
- ‘What is the cost of keeping things the same?’
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