Return on Investment is a methodology for estimating the financial impact of a proposed project, evaluating costs vs. project savings and revenues. While it is important to understand project TCO, including unbudgeted end user costs of training and lost productivity, ROI traditionally evaluates only budgeted (direct) costs.
Enter Costs and Savings
CoSN's VOI Project Cost Estimator provides an Input sheet for entry of costs, and ROI sheet for entry of anticipated savings and increased revenues over time. Savings include reduced expenditures, personnel productivity, future cost avoidance and increased revenue.
Calculate ROI and Project Payback Time
In keeping with traditional ROI, only direct costs are calculated for ROI: (Savings - Costs) / Costs. A positive ROI means estimated net savings, the more positive the better. If your ROI is less than .8, the ROI worksheet suggests that in addition to ROI, qualitative benefits should be evaluated. The CoSN Project Cost Estimator ROI sheet also calculates project payback time in months - a useful number for budgeting considerations.
It is useful to evaluate probability of success for the proposed project by looking at obstacles and developing a consensus by the project team. For instance, an ERP implementation project is complex and may ultimately not provide some specific functions needed by the district. The probability of success can be applied to the projected savings for a recalculation of ROI or just noted when evaluating projects.