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ROI

By neolongfellow ·
What is the basic formula for Return On Investment. And how does it work on more complicated projects. An example would be highly appreciated.

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by nabeedi In reply to ROI

The answer is diffecult. However, you can find an answer in the following articles posted by TechRepublic:
1."Getting a handle on ROI" by Jack Fox, Feb 10, 2000.
2."Avoiding common ROI misconceptions and mistakes" by Jack Fox, Feb 17, 2000.

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by neolongfellow In reply to ROI
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by RealGem In reply to ROI

Return on investment is simply (benefits - costs) divided by costs. If you earned $110K by spending $100K, you achieved a (110 - 100) / 100 = 10% return on your investment. That's the simple answer. ROI gets complicated when you have less-than-tangible costs and benefits.

For example, let's say that your project will reduce toxic emissions from your powerplant by 50%. The project is mandated by law. It will cost $200K to implement. You can sell the replaced equipment for $10K to a developing country. Your return on investment appears to be (10 - 200) / 200, which is -95%. Of course, the government will shut you down if you don't comply.
ROI gets bigger as project get bigger. There are more cost items to measure. When the workis at the proposal stage, costs benefits are estimated, and so ROI is not solid.

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by neolongfellow In reply to ROI

This is great. I'm very happy with this response. Thanks again.

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