Developing Your ROI

There are three common ways to analyze ROI:

  • Net present value: Derived by subtracting the total of the costs (converted to present values using the discount rate) from the total present value of the benefits.

  • Pay-back period: The period required for the total costs (development and support) to be met or paid back by the accumulated benefits.

  • Internal rate of return: Derived using an exponential equation that calculates the interest rate required to make the total future value of the benefits equal to the total future value of the costs (Microsoft Excel can calculate this as a function).

Cost-Effectiveness

As we covered in Chapter 9, if your project is simply upgrading equipment such as computers and there is functional replacement ...

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