Simple Return on Investment Calculations

Elton Billings

elton@cluebox.com

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

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)

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

Identifying Sources of Return

Savings through shorter task time Savings through shorter processing time Savings through the prevention of

“leakage”

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

Old Conference Room Application:

Web Conference Room Application:

Costs 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

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

Business Card Request:

Identifying 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

Costs 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

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

New Business Card Request:

Vacation Request:

Identifying 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

Costs 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

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