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return on investment calculation

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					   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

				
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