Simple Return on Investment Calculations

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Simple Return on Investment Calculations

Simple Return on Investment Calculations

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Presentation Transcript

1. Simple Return on Investment Calculations Elton Billings elton@cluebox.com

2. 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

3. 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)

4. 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

5. Identifying Sources of Return • Savings through shorter task time • Savings through shorter processing time • Savings through the prevention of “leakage”

6. 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

7. Old Conference Room Application:

8. Web Conference Room Application:

9. 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

10. 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

12. 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

13. 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

14. 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