ROI
By: Ray Myers, Jr., PMP
Definition: Return on Investment, or ROI is a performance measure used to evaluate the net benefit of a project to the performing organization. ROI is usually expressed as a percentage.
Every organization has a wish list of projects that they would like to be implemented, but funding and resource limitations usually restrict what can actually be done. Most organizations use ranking tools to evaluate the potential benefits versus the cost of implementation to assist in project selection.
ROI is arguably the most popular metric to use when comparing the potential benefits of number of projects. It is commonly used by organizations to assist as a project selection tool because it can be used to rank the potential payback in terms of the net benefit to the organization if the project was actually implemented. ROI calculations typically do not include ongoing business or maintenance operations as part of the calculation.
How to Calculate ROI
Most companies measure ROI performance over a 3 year period or less in terms of today’s dollars.
Gain from Project = the total benefit of the project in dollars over a 3 year period
Cost of Project = the total cost to implement the project in dollars
How to Evaluate ROI
The resulting ROI will be expressed as a percentage. The higher the ROI, the better.
- Calculate the ROI for each candidate project
- List each project and it’s ROI
- Rank the project and ROI from the highest ROI to the lowest
- The project(s) with the highest ROI will provide the most benefit to the performing organization
Additional areas to consider when evaluating ROI on a project include potential cost savings to the organization and increased revenue that may be realized because the project was completed.
About the Author: Ray Myers, Jr. is a PMP certified project manager with over 2o years experience planning and managing technology projects. Contact Ray at wwwpmservicesnw.com
Article source: www.pmservicesnw.com
