The first step in calculating the Return on Investment (ROI) of a project is to establish the factors that will determine success. Two key factors are business performance and productivity.
Here are some useful metrics to consider when considering your return on investment:
In comparison, abstract KPIs such as better user experience, improved customer satisfaction, and live reporting capability add little value and are difficult to measure.
Before taking the first step to start your implementation, it is important you have a clear perspective of your costs. While establishing the return may require creative thinking, the costs can be more concrete. Evidently, the cost of acquiring the software or repeatable subscription fees will play a large part in the overall investment.
When calculating return on investment, keep the maths simple: (Gain on Investment – Cost of Investment) / (Cost of Investment).
The critical task is teasing out the underlying returns that reflect your business goals, as these will help you understand if you can achieve a meaningful return. Even if the process reveals little, it may answer the following question: Do I really need this system?
If you cannot identify the returns to answer this, then perhaps you don’t need the technology after all!
Conversely, if you are hoping to reduce accounting overhead, and have worked out that you could save £100,000 in year-1 operational costs via a £50,000 investment, then:
Year-1 ROI = (£100,000 – £50,000) / (£50,000) = 100%
The reality is, that by tracking agreed KPIs against the initial ROI forecast, you will maintain a healthy focus on what matters most to your business. If you are both disciplined in first coming up with performance metrics, and disciplined in reviewing ongoing performance, the likelihood is that you have set yourself up for success even if the initial forecasts weren’t that accurate.
Thinking ahead is time-consuming. But, as with any great investment, the return should far outweigh the upfront expense, if properly thought through. Thankfully, the return on cloud-based systems is relatively straightforward to estimate as cloud subscription models mean that repeatable costs are easily understood.
Now you’ve learned how to calculate ROI of your project, but how else can you ensure your new systems project is a success?
Check out our ‘The Value Of Project Managers When Implementing A New System’ blog to find out.