ROI Calculations - It doesn't have to be rocket science

Supporting our clients to build business cases and return on investment calculations is something which we are regularly engaged in. One common misconception is that this extremely complex and something akin to rocket science. It doesn't need to be.


When we engage to assit clients to define their business cases our first question is: Why are you doing this now? This may sound easy but it is often something which our customers can not always succinctly define. There is often a lot of pontification and perceived benefits or pressures from areas of the business but no measurable criteria or monetary value saving. We also try and come at these challenges from the savings perspective. Why: If it is not going to offer you savings, what benefits are you going to get? Even if the driver is legislation or regulations their is still a monetary benefit as you will be reducing the risk of litigation or a fine. 


So how do you begin to work out the savings? We recommend taking a look at the FTE's who will be involved and their average costs - we then work this out at a very broad level to give a day rate or even more granular, such as a hourly rate or even minute rate. With this you are in a position where you can immediately work through some scenarios for the savings you will make and build in some assumptions. This does not take into account the benefit of financial implications of freeing up the resources to do more high value or other key tasks which will impact your business in a positive way or if IT is involved any technology savings.


The next thing that we do is to look at the primary, secondary and tertiary drivers. These are the things that will impact the business case to varying degreed:

• Primary
• These are the elements which will directly drive the benefits of the project. 
• If the project is optimisation related, this could be the amount of an asset used and the amount to be saved by this project. This can then be mapped to a cost per GB for CAPEX and OPEX (maintenance, management etc.).
• Secondary
• This can vary largely on a case by case basis. In general terms we consider this to be areas that will be impacted but will not have the same effect as the primary driver. They are effected but not to the same extent as the primary, we use Pareto's law here, 20% should be primary and where we focus.
• To follow the optimisation use case, this could be the benefits of reassigning the asset to something else and the cost savings or value of doing that. This can be complicated and may not be required.
• Tertiary
• These tend to be things that are in proximity but not directly involved.
• We consider these to be things of interest but not having significant impact. They are included to have a holistic view.

We have developed various ROI calculations for various Line Of Business (LOB) activities and we can share further details on these. You can reach us at info@5point9.com.


Thanks,


For further information or details you can reach us here Enterprise@5point9.com

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