The ROI of Business Simulations

As most businesses knows, answering a Request for Proposal (RFP) is a thankless, painstaking, and time-consuming task that too many times is a farce because the procurement department forces stakeholders to go out to bid even when they have already verbally awarded the contract to an existing provider or friend of the firm.

While we would never turn down a great opportunity because it is an RFP, over the years we have become much more rigorous about the types of RFPs we respond to. Recently, we decided to pursue an RFP from “Company X” because it fit the basic criteria we established for pursuit:

• Asking for a business simulation as part of the solution.
• Company X has revenues over $1 billion.
• Has an audience of more than 500 leaders that need help.
• Sees the training initiative as a way to change values and culture.
• Perceived to have a realistic budget for the initiative.

After investing close to 60 hours of team time thinking about, brainstorming, and designing a great solution, we shipped off the RFP and waited for a response.

About two weeks after they told us they would get back to us, we heard that while the solution we proposed sounded great, there was a much smaller budget allocated for the customization and development of the simulation. Even though we asked if there was a budget for the customization (they wouldn’t provide a number), it turns out their expectation and our expectation was significantly different. We further found out that in the end, they went with a solution that did not include a simulation (it was a paper-based case study). Clearly, what they wanted and what they asked for in the RFP was not affordable and couldn’t be created by any reliable simulation developer.

This situation got me thinking about one of the most difficult parts of business acumen, quantifying the value proposition. Are digital, interactive, immersive simulations better than a case study? Absolutely! Are they better at 10 times the investment? It depends on the project, and it depends on the impact. In some cases, I believe the Return on Investment (ROI) could be 100 times the expense.

The Business Value of Simulations

There are three reasons why business simulations provide so much value and return on investment:

1. Practice – The best way to build experience is through experience and simulations provide learners with unlimited amounts of practice time. From setting and executing strategy to practicing a business coaching dialogue, participants can accelerate their skill building and application of those skills in a digital, simulated environment. Much like a pilot who practices flying skills, a business simulation enables learners to fly a business and practice new skills and explore new tools.
2. Proven – Over the past three decades, simulations have been proven to provide maximum learning and application in an accelerated way. Literally millions of learners participated in some sort of learning experience utilizing a simulation and have loved the experience.
3. Risk-free – Digital simulations are risk free. They encourage learners to try new things and make their mistakes in a simulated environment rather than the real world where people can’t get hurt or where a business could go bankrupt for a bad and inexperienced decision.

Case Study

We recently worked with a client to design, develop, and deliver a business leadership simulation to provide learning opportunities to implement a new approach to coaching. As part of the project, participants were asked a series of questions about their confidence before the simulation and their confidence after the simulation. We also conducted a learning experience with participants who just went through the learning content but didn’t have a chance to practice their new skills in the simulation.

• 12% of the participants going through the content reported they felt more confident delivering coaching after the program.
• 68% of the participants going through the content and the simulation reported they felt more confident delivering coaching after the program.

In an organization of more than 50,000 managers, what is the impact of 68% of them improving their coaching? It is quite reasonable to calculate a 1% increase in revenues and a 1% increase in operational efficiencies. That’s a 2% drop to the bottom line. For a $30 billion company that has a ROS of 17% ($5.1 billion), a 2% increase is over $100,000,000 at least a 100 X return on the investment.