Return On Investment for IT Investments





  • [Profits / Invested Capital] * 100%

  • [PV (Benefits – Costs)*/ PV (Costs)]* 100% OR NPV of Benefits = PV of Benefits – PV of Costs

  • Profits / Firm Assets

  • Total Net Benefits / Initial Costs



    • Net Benefits

  • The overall first year's profit or as the weighted average profit during the lifetime of the project.

    • Costs

  • The denominator in the ROI equation captures all costs incurred to obtain the benefits of the project or investment.
  • The costs or invested capital for some companies are defined as the first year capital expenditure while other companies may include recurring or periodic costs such as software updates or future integration costs.

    • Time Period

    Varies


    ROI:
  • widely accepted tool
  • straightforward
  • good way to communicate the financial return of a project or investment to a wide audience that may not include finance majors
  • used by IT vendors as a sale tool
  • establishes the initial assumptions that justify a project or investment.