Gunther: “Each company is different, and you need to work with assumptions and estimations, but I can share, how I see the costs and benefits at MDI GmbH – a consulting and training company.”
Aline: “Can you give us some hard facts about the company?”
Gunther: “Sure, we are talking about 27 employees, 4 of them in leadership positions. Let’s take 3 months as calculation period and a quarterly revenue of € 1.300.000,-.”
Aline: “Thank you. Now I am curious about the impact of OKR on the balance sheet.”
Gunther: “Good, let’s start with costs: For a quarterly planning meeting we need 6 people for 5h i.e. 30 hours altogether. And 27 people spend each 2 hours on formulating team OKRs including listening to the presentation of company goals and presenting afterwards the new quarterly OKRs to each other, that are 54 h.
Then we need to take into consideration the Check in meetings: Each second week 30 minutes for each employee + 2h for 4 leaders = 12h + 8 h = 20 h; 5x in a quarter are 100 h.
In total we come to 154 h per quarter. If we calculate € 50, – per hour we have people costs of € 7.700, -.
As all organisations who did not introduce OKR somehow deal with goals, we must consider that there are always related people costs. Probably in a classical MbO (Management by objectives) -organisation less time for planning is needed, but on the other side lot of time is spent on ad hoc priority talks.
After analysing the direct costs of running OKR, let’s look at the impact:
My estimation is, that 10% of sales is the result of OKR decisions, due to flexibility in creating and offering fitting solutions, better processes, training, marketing. That counts for € 130.000,- per quarter. But for sure, higher sales means also higher costs involved. For € 130.000 higher sales the related costs might be appr. 80%. That leaves an additional gross margin of € 26.000,-.
But OKR influences also productivity and thus the costs. OKR focuses on change, not on the routine tasks. It helps you to think again and again about which routine task can be stopped, started and optimised. This results in automatization and digitalization. OKR helps to drive this faster and smarter. If we reach a productivity growth of 2% per quarter and the competition only 1 %, we could argue that OKR contributes in our example to € 10.400,- cost advantage. Calculation: If we have 80% of sales as needed costs this means in absolute numbers 1% of € 1.040.000,- of means a competitive advantage of € 10.400,-.
Summing up the financial impact of OKR per quarter we get:
- Gross margin on higher sales: € 26.000,-
- Productivity advantage: € 10.400,-
- Total: € 36.400,-
The positive impact on the balance sheet of OKR is almost 5 x higher than the related people costs.”
Aline: “It seems you are convinced that OKR pays off?”
Gunther: “For us, it is definitely a YES!”