How to Calculate ROI for IT Investments
posted by Anna Mar, January 06, 2012Return on Investment (ROI) has a relatively simple definition but is notoriously hard to estimate with accuracy.
How to Calculate ROI
The accounting definition of ROI is as follows:For example, let's say you invest $100 million dollars in an ERP system that's expected to generate $120 million in cost savings:
Your ROI would be 20%. ROI doesn't account for time. If you want to judge your investments time is pretty important. If you make 20% over 4 months that's a lot better than making 20% over 10 years. That's why time-sensitive measures such as Payback Period, Net Present Value (NPV) and Internal Rate of Return are more useful for the purposes of IT management.
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