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Simple Return on Investment Calculations
Simple Return on Investment Calculations
Elton Billings
Elton Billings
Focus of This Discussion:Focus of This Discussion:
Tactical ROI
ROI for a single initiative or application
Identification of sources of Return
Examination of task cost savings on a per-transaction basis
Tactical ROI
ROI for a single initiative or application
Identification of sources of Return
Examination of task cost savings on a per-transaction basis
Some ROI Comparison Methods:Some ROI Comparison Methods:
Return as a percentage of Investment over a fixed period:
(Return / Investment) x 100
Return after deducting Investment for a fixed period:
(Return - Investment)
How long until Return equals Investment: (Investment / Return per week)
Return as a percentage of Investment over a fixed period:
(Return / Investment) x 100
Return after deducting Investment for a fixed period:
(Return - Investment)
How long until Return equals Investment: (Investment / Return per week)
Identifying Costs (Investment)Identifying Costs (Investment)
One time costs Development costs Cost of any new software Cost of any new hardware Training costs
Ongoing costs Information update costs Maintenance costs Training costs Costs to increase capacity when needed
One time costs Development costs Cost of any new software Cost of any new hardware Training costs
Ongoing costs Information update costs Maintenance costs Training costs Costs to increase capacity when needed
Identifying Sources of ReturnIdentifying Sources of Return
Savings through shorter task time
Savings through shorter processing time
Savings through the prevention of “leakage”
Savings through shorter task time
Savings through shorter processing time
Savings through the prevention of “leakage”
A Method for Identifying Savings:A Method for Identifying Savings: Observe old process
Observe new process
Make sure to include all phases of both methods
Measure process times for both
Check for any statistical differences in outcome
Measure frequency of task
Understand fully loaded employee cost per hour
Observe old process
Observe new process
Make sure to include all phases of both methods
Measure process times for both
Check for any statistical differences in outcome
Measure frequency of task
Understand fully loaded employee cost per hour
Old Conference Room Application:Old Conference Room Application:
Web Conference Room Application:Web Conference Room Application:
Costs and SavingsCosts and Savings
Costs: 3 days to develop interface 24 hrs x $40 = $960
Savings: Each reservation took 10 minutes less 4560 non-recurring reservations first year 760 hrs x $40 = $30,400
Costs: 3 days to develop interface 24 hrs x $40 = $960
Savings: Each reservation took 10 minutes less 4560 non-recurring reservations first year 760 hrs x $40 = $30,400
ROI Calculations:ROI Calculations: Return as a percentage of Investment over
a fixed period: (Return / Investment) x 100 ($30,400 / $960) x 100 = 3167%
Return after deducting Investment for a fixed period:
Return - Investment $30,400 - $960 = $29,440
How long until Return equals Investment: Investment / Return per week $960 / $585 = 1.6 weeks
Return as a percentage of Investment over a fixed period:
(Return / Investment) x 100 ($30,400 / $960) x 100 = 3167%
Return after deducting Investment for a fixed period:
Return - Investment $30,400 - $960 = $29,440
How long until Return equals Investment: Investment / Return per week $960 / $585 = 1.6 weeks
Business Card Request:Business Card Request:
Identifying Sources of ReturnIdentifying Sources of Return
Online form and paper form took about the same time to complete
??????????
The rest of the story… Paper form left in manager’s inbox for approval When we tried to follow up, it was gone Filled out form again Purchasing department completed and sent printing
request to vendor
Online form and paper form took about the same time to complete
??????????
The rest of the story… Paper form left in manager’s inbox for approval When we tried to follow up, it was gone Filled out form again Purchasing department completed and sent printing
request to vendor
Costs and SavingsCosts and Savings
Costs: 5 days to develop application and web interface 40 hrs x $40 = $1600
Savings: Each order took 10 minutes less time for routing and
processing One third of orders involved about 6 minutes for
searching, questions, and re-submission of forms 743 Orders first year of application 148 hrs x $40 = $5920
Costs: 5 days to develop application and web interface 40 hrs x $40 = $1600
Savings: Each order took 10 minutes less time for routing and
processing One third of orders involved about 6 minutes for
searching, questions, and re-submission of forms 743 Orders first year of application 148 hrs x $40 = $5920
ROI Calculations:ROI Calculations: Return as a percentage of Investment over
a fixed period: (Return / Investment) x 100 ($5920 / $1600) x 100 = 370%
Return after deducting Investment for a fixed period:
Return - Investment $5920 - $1600 = $4320
How long until Return equals Investment: Investment / Return per week $1600 / $114 = 14 weeks
Return as a percentage of Investment over a fixed period:
(Return / Investment) x 100 ($5920 / $1600) x 100 = 370%
Return after deducting Investment for a fixed period:
Return - Investment $5920 - $1600 = $4320
How long until Return equals Investment: Investment / Return per week $1600 / $114 = 14 weeks
New Business Card Request:New Business Card Request:
Vacation Request:Vacation Request:
Identifying Sources of ReturnIdentifying Sources of Return
Old process was to send e-mail to department admin, who forwarded to payroll after approval
Online approval process cut delays due to missing information, loss of e-mail
The rest of the story… Discovered verbal approvals sometimes skipped
process E-mails not always forwarded No reliable record of requests existed “Leakage” may have been as great as one day per
person per year
Old process was to send e-mail to department admin, who forwarded to payroll after approval
Online approval process cut delays due to missing information, loss of e-mail
The rest of the story… Discovered verbal approvals sometimes skipped
process E-mails not always forwarded No reliable record of requests existed “Leakage” may have been as great as one day per
person per year
Costs and SavingsCosts and Savings Costs:
5 days to develop application and web interface 40 hrs x $40 = $1600
Savings: Each request took 10 minutes less time for routing and
processing 3218 requests in first year 536 hrs x $40 = $21,440 Estimated 5% of employees correctly reported one
additional day of vacation each 5% x 800 employees = 40 days 320 hrs x $40 = $12,800 Total savings = $34,240
Costs: 5 days to develop application and web interface 40 hrs x $40 = $1600
Savings: Each request took 10 minutes less time for routing and
processing 3218 requests in first year 536 hrs x $40 = $21,440 Estimated 5% of employees correctly reported one
additional day of vacation each 5% x 800 employees = 40 days 320 hrs x $40 = $12,800 Total savings = $34,240
ROI Calculations:ROI Calculations: Return as a percentage of Investment over
a fixed period: (Return / Investment) x 100 ($34,240 / $1600) x 100 = 2140%
Return after deducting Investment for a fixed period:
Return - Investment $34,240 - $1600 = $32,640
How long until Return equals Investment: Investment / Return per week $1600 / $658 = 2.4 weeks
Return as a percentage of Investment over a fixed period:
(Return / Investment) x 100 ($34,240 / $1600) x 100 = 2140%
Return after deducting Investment for a fixed period:
Return - Investment $34,240 - $1600 = $32,640
How long until Return equals Investment: Investment / Return per week $1600 / $658 = 2.4 weeks