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
(Return // Investment)
Investment) xx 100
100

 Return after deducting Investment for a
fixed period:

 (Return
(Return -- Investment)
Investment)

 How long until Return equals Investment:

 (Investment
(Investment // Return
Return per
per week)
week)
Identifying Costs (Investment)


 One time costs

 Development
Development costs
costs

 Cost
Cost of
of any
any new
new software
software

 Cost
Cost of
of any
any new
new hardware
hardware

 Training
Training costs

 Ongoing costs

 Information
Information update
update costs
costs

 Maintenance
Maintenance costs
costs

 Training
Training costs

 Costs
Costs to
to increase
increase capacity
capacity when
when needed
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:

 33 days
days to
to develop
develop interface
interface

 24
24 hrs
hrs xx $40
$40 == $960
$960

 Savings:

 Each
Each reservation
reservation took 10 minutes less

 4560
4560 non-recurring
non-recurring reservations
reservations first
first year
year

 760
760 hrs
hrs xx $40
$40 == $30,400
$30,400
ROI Calculations:

 Return as a percentage of Investment over
a fixed period:

 (Return
(Return // Investment)
Investment) xx 100
100

 ($30,400
($30,400 // $960)
$960) xx 100
100 == 3167%
3167%

 Return after deducting Investment for a
fixed period:

 Return
Return - Investment

 $30,400
$30,400 -- $960
$960 == $29,440
$29,440

 How long until Return equals Investment:

 Investment
Investment // Return
Return per
per week
week

 $960
$960 // $585
$585 == 1.6
1.6 weeks
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
Paper form
form left
left in
in manager’s
manager’s inbox
inbox for
for approval
approval

 When
When we
we tried
tried to
to follow
follow up,
up, itit was
was gone
gone

 Filled
Filled out
out form
form again
again

 Purchasing
Purchasing department
department completed
completed and
and sent
sent printing
printing
request
request to
to vendor
vendor
Costs and Savings

 Costs:

 55 days
days to
to develop
develop application
application and
and web
web interface
interface

 40
40 hrs
hrs xx $40
$40 == $1600
$1600

 Savings:

 Each
Each order
order took 10 minutes less
less time for
for routing and
processing
processing

 One
One third
third of
of orders
orders involved
involved about
about 66 minutes
minutes for
for
searching,
searching, questions,
questions, and
and re-submission
re-submission of
of forms
forms

 743
743 Orders
Orders first year of application

 148
148 hrs
hrs xx $40
$40 == $5920
$5920
ROI Calculations:

 Return as a percentage of Investment over
a fixed period:

 (Return
(Return // Investment)
Investment) xx 100
100

 ($5920
($5920 // $1600)
$1600) xx 100
100 == 370%
370%

 Return after deducting Investment for a
fixed period:

 Return
Return - Investment

 $5920
$5920 -- $1600
$1600 == $4320
$4320

 How long until Return equals Investment:

 Investment
Investment // Return
Return per
per week
week

 $1600
$1600 // $114
$114 == 14
14 weeks
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
Discovered verbal
verbal approvals
approvals sometimes
sometimes skipped
skipped
process
process

 E-mails
E-mails not
not always
always forwarded
forwarded

 No
No reliable
reliable record
record of
of requests
requests existed
existed

 “Leakage”
“Leakage” may
may have
have been
been as
as great
great as
as one
one day
day per
per
person
person per
per year
year
Costs and Savings

 Costs:

 55 days
days to
to develop
develop application
application and
and web
web interface
interface

 40
40 hrs
hrs xx $40 == $1600

 Savings:

 Each
Each request
request took
took 10
10 minutes
minutes less
less time
time for
for routing and
processing
processing

 3218
3218 requests
requests in first year

 536
536 hrs
hrs xx $40 == $21,440

 Estimated
Estimated 5%
5% of
of employees
employees correctly
correctly reported
reported one
one
additional
additional day
day of
of vacation
vacation each
each

 5%
5% xx 800
800 employees
employees == 40
40 days
days

 320
320 hrs
hrs xx $40 == $12,800

 Total
Total savings
savings == $34,240
$34,240
ROI Calculations:

 Return as a percentage of Investment over
a fixed period:

 (Return
(Return // Investment)
Investment) xx 100
100

 ($34,240
($34,240 // $1600)
$1600) xx 100
100 == 2140%
2140%

 Return after deducting Investment for a
fixed period:

 Return
Return - Investment

 $34,240
$34,240 -- $1600
$1600 == $32,640
$32,640

 How long until Return equals Investment:

 Investment
Investment // Return
Return per
per week
week

 $1600
$1600 // $658
$658 == 2.4
2.4 weeks
weeks