Calculate the ROI of Your Project
Dr. Samer Kantakji
Solution Matrix
Sent: Wednesday, March 25, 2009 11:37 PM
To: kant...@gmail.com
Subject: Calculate the ROI of Your Project
If you want to know how to calculate a simple Return on Investment, here is
the formula: take the benefits of your project, subtract the costs and
divide the result by the costs. There you go.
If this does not help you at all and you still want know how to calculate
the ROI for your specific project: congratulations! You are one of the few
who want to prepare a Business Case for real!
http://www.solutionmatrix.com/getting-your-budget-approved.html
A lot of our website visitors ask us "How do I calculate a ROI?" or "What is
ROI?". Of course, we answer these questions, but from time to time I ask
myself why these people don't visit Wikipedia or other encyclopedias to find
out about its definition and the formula to calculate it. The real
difficulty when calculating a Return on Investment of a project is not about
understanding the formula, the biggest hurdle to success is to identify all
the costs and all the hard and soft benefits of the project. This is the
foundation to determine an accurate Return on Investment and to analyze a
unique project correctly.
In other words: there are two ways to calculate a ROI. A good and a better
way!
The good way is mashing all costs and benefits and calculating a simple ROI.
This is fine for buying a new fridge and calculating its ROI in terms of
cost savings through less use of electricity etc. However, for bigger
projects I would not use the simple ROI for one reason: it is not
justifiable!
Imagine you have to present your ROI calculation to a CEO, CFO or anyone
superior to you and she or he asks: "How did you calculate this ROI, where
does this number come from, did you include every relevant factor of the
project, and what are the biggest risk factors within your project?"
The better way to calculate a ROI is to perform a proper ROI Business Case
Analysis. Now all these questions can be answered with ease. Our method to
calculate an accurate and precise ROI including all costs, benefits, and
risks consists of three simple steps:
1) Creating an Influence Matrix which visualizes the entire decision problem
and covers all relevant costs and benefits of the project
2) Setting up a financial model to quantify hard and soft benefits and to
calculate the ROI
3) Performing a sensitivity analysis which identifies the biggest risk
factors with respect to the magnitude of the ROI and their monetary impact
on the outcome of the project .
"Knowing what ROI is and where it's derived from is one thing. Calculating
the ROI for my specific project is something completely different!
Especially finding out the Return on Investment of marketing campaign
projects was a hard nut to crack until I applied to the Solution Matrix
method to prepare a ROI Business Case?"
Jens Friedlmeier
Marketing Controller
Plazamedia
Munich, Germany
During the last 14 years of experience with hundreds of ROI Business Cases I
have never seen a convincing Business Case that calculated the simple Return
on Investment only. With this ROI calculation decision-makers could not be
convinced. So please take this advice: If you really want your project to be
successful and you need to convince someone with a high ROI to get your
budget, do not opt for the good ROI calculation. Take the better one!
http://www.solutionmatrix.com/getting-your-budget-approved.html
To your success,
Johannes
Solutionmatrix
Friedberger Landstr. 84
Frankfurt am Main, HE 60316
Germany
011 491788586084
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