Return on investment (ROI) is difficult to measure when it comes to project value. Ultimately, ROI is the driving force behind any project, but how do you measure its actual monetary value?
Chris Schweighardt has outlined a system for calculating this value in an article that can be viewed at www.isixsigma.com.
“Depending on the industry, there are multiple interpretations of ROI. For the purposes of this article, ROI is an indicator used to measure the financial gain/loss (or “value”) of a project in relation to it’s cost. Typically, it is used in determining whether a project will yield a positive payback and have value for the business.”
The article looks at why ROI is important and some calculations to follow to determine the value of your own project.
- Calculation of ROI is important for the following reasons:
- It quantifies project value
- It builds stakeholder support
- It can uncover additional benefits
- It can lead to project prioritisation
- ROI can be calculated using a simple formula:
ROI = [(Financial value – Project cost) / Project cost] x 100
- Financial value is simply the project’s payback, breaking down the project into components and calculating the value for each
- Project cost is calculated using two variables: Work decomposition over time and cost of the work.
The article is comprehensive and takes you through a step-by-step process for your calculations. You can read it here: Calculating ROI to Realise Project Value