it service management

1. SICPRESIONTATION RETURN ON
INVESTMENT
Pandey Abhishek
TY BSC I.T. (A)

2. ROI (return on investment) is a widely used
measure to compare the effectiveness of
IT systems investments.
It is commonly used to justify IT projects, but can measure
project returns at any stage and be used to evaluate project team
performance and other relevant factors.
INTRODUCTION

3. Definition of ROI
ROI % = (Return – Investment
Cost)/Investment Cost x 100
• The basic ROI calculation is to divide the
net return from an investment by the cost
of the investment, and to express this as a
percentage.
• ROI, while a simple and extremely popular
metric, may be easily modified for
different situations. The ROI formula is:
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4. FR
Financial Benefits
ROI on IT system projects should be
b ased on tan g ib le ( or h ard ) b en efits.
Gen erally, fin an c ial b en efits can b e
p lac ed into five categories:
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5. FR
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• Providing a new service that results in increased sales to new and existing
customers.
Revenue Enhancement
• Travel reduction (e.g., online meetings replacing face-to-face meetings, remote
support replacing onsite support).
• Lower ongoing maintenance costs.
• Fewer days in receivables resulting in lower interest costs.
Cost Reduction
• Time saved (increased productivity and reduction in time to complete tasks).
• Time saved from reduced length and number of customer service calls.
• Time saved from reduced numbers of errors.
Cost Avoidance

6. FR
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• Lower costs for servers and storage.
Capital Reduction
• Avoids planned purchase of new data center.
Capital Avoidance

7. FRNon-financial benefits
Non -fin an c ial b en efits sh ou ld n ot b e in c lu d ed in RO I calc u lation s. W h ile th ey
are often as imp ortant as tan g ib le b en efits, th ey are d iffic u lt to fin an c ially
quantif y. Non -financial benefits should be fully explained within the business
case an d , wh ere p ossib le, d etails p rovid ed of any q u antification or
measu rement. E xamp les of intan g ib le IT b en efits in c lu d e:
Increased customer satisfaction.
Ability to offer improved customer service and support.
Increased usability leading to increased sales.
Increased user satisfaction.
Improved/automated business processes that the new system supports and enables faster and more accurate
information.
Improved analytical solutions.
Better forecasting.
Better controls to improve data input accuracy.
Improved software vendor support and service, improved communications, better knowledge of software,
system set-up, and the like. 7

8. FRCalculation Considerations
Relevant factors to consider in ROI calculations include
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The timeframe for calculating ROI for IT projects may vary. Three years is common for hardware projects,
as technology is often obsolete after 3 years. However, 5 or more years is often used for new software
systems. Changing the timeframe can make significant differences in ROI calculations. Try to be
consistent from project to project.
Timeframe :
ROI calculations should be consistently applied across all IT system projects. Consistency also applies to
the assumptions behind the ROI calculations. For example treatment of inflation and taxation (corporate
and VAT/sales taxes).
Consistency :
Details shown to the last dollar or to cents lead users to believe in accuracy that does not exist. Using
$000’s omitted would be more appropriate. Equally, every figure being rounded with two or more zeros
may lead users to believe that calculations are fairly inaccurate. A balance has to be struck, combined with
the need to be as certain and accurate as possible.
Precision :

9. FRROI calculations
Other calculations that are typically produced at the same time as
calculating ROI are:
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the return a project will make at a specified discount rate. Ideally this should be a
high/positive value.
NPV (net present value)
The yearly return % of the investment – the higher, the better.
IRR (internal rate of return)
This is normally expressed as the number of years it takes to recover the investment. The
shorter the payback, the better.
Payback (also known as break even point).

10. SIC