Return on Investment: Initial Return on Investment: Initial Considerations for Measuring Cost-Considerations for Measuring Cost-

Savings of AT Reuse Savings of AT Reuse

Sara SackSara Sack

Director of Assistive Technology for Director of Assistive Technology for KansansKansans

May 25, 2007May 25, 2007

What is ROI Analysis?What is ROI Analysis?

One of several approaches to building a One of several approaches to building a financial business case (Solution Matrix)financial business case (Solution Matrix)

A performance measure used to evaluate A performance measure used to evaluate the efficiency of an investment or…the efficiency of an investment or…

A performance measure to compare the A performance measure to compare the efficiency of different investments.efficiency of different investments.

What is ROI Analysis? (cont.)What is ROI Analysis? (cont.)

ROI is a traditional financial measure to ROI is a traditional financial measure to determine benefit to the businessdetermine benefit to the business – Benefit of trainingBenefit of training– Benefit of asset purchase decisions (computer Benefit of asset purchase decisions (computer

systems or a fleet of vehicles)systems or a fleet of vehicles)– Marketing, recruiting programsMarketing, recruiting programs Example: Florida’s DOE is evaluating Example: Florida’s DOE is evaluating

measures of performance in light of resources measures of performance in light of resources allocated to individual schools and districtsallocated to individual schools and districts

What is ROI Analysis? (cont.)What is ROI Analysis? (cont.)

ROI is a metric that yields some ROI is a metric that yields some insights into how to improve insights into how to improve business results in the future (L. business results in the future (L. Dombrowski)Dombrowski)

Simple ROI vs. ROISimple ROI vs. ROI

The benefit (return) of an investment is The benefit (return) of an investment is divided by the cost of the investments; the divided by the cost of the investments; the result is expressed as a percentage or a ratio. result is expressed as a percentage or a ratio. This is referred to as “simple ROI”.This is referred to as “simple ROI”.

ROI= ROI= Gains from investment – Cost of investmentGains from investment – Cost of investment Cost of InvestmentCost of Investment

$700,000 - $500,000 $700,000 - $500,000 = 40%= 40% $500,000$500,000

Simple ROI Investment ExampleSimple ROI Investment Example

ROI is used to compare returns on investment ROI is used to compare returns on investment where the money gained or lost—or the where the money gained or lost—or the money invested—are not easily compared money invested—are not easily compared using monetary values. For example, a using monetary values. For example, a $1,000 investment that earns $50 in interest $1,000 investment that earns $50 in interest obviously generates more cash than a $100 obviously generates more cash than a $100 investment that earns $20 interest, but the investment that earns $20 interest, but the $100 investment earns a higher return. So….$100 investment earns a higher return. So….

Simple ROI Investment ExampleSimple ROI Investment Example

$50/$1,000$50/$1,000

$1050 - $1000$1050 - $1000 = = 50 50 = 5% ROI = 5% ROI

$1000 $1000$1000 $1000

$20/$100$20/$100

$120-100$120-100 = = 2020 = 20% ROI = 20% ROI

$100 $100$100 $100

ROI (or Complex ROI)ROI (or Complex ROI)

In complex business settings, it is not In complex business settings, it is not always easy to match specific returns with always easy to match specific returns with specific costs (Solution Matrix)specific costs (Solution Matrix)

New formulas involve calculating:New formulas involve calculating:

Total Benefit – Total Costs Total Benefit – Total Costs = = ---- ---- x 100 =ROIx 100 =ROI

Total CostsTotal Costs

Considerations for Using ROIConsiderations for Using ROI Locate software programs designed to help Locate software programs designed to help

managers identify total benefits and total costs managers identify total benefits and total costs Establish measures and state them publicly before Establish measures and state them publicly before

calculating ROIcalculating ROI Determine time periods and state them carefully. Determine time periods and state them carefully. Determine appropriate calculations to be made. Determine appropriate calculations to be made. Be aware that shorter or longer time periods may Be aware that shorter or longer time periods may

produce quite different ROIs.produce quite different ROIs.

Next Steps for ATK Related to ROINext Steps for ATK Related to ROI

Review electronic management software including RADDIE, Solution Review electronic management software including RADDIE, Solution Matrix, and othersMatrix, and others

Determine Internal and External benefits and costsDetermine Internal and External benefits and costs– Staff/labor costsStaff/labor costs– StorageStorage– Transportation/delivery costsTransportation/delivery costs– Repair costsRepair costs– SuppliesSupplies– Marketing and outreachMarketing and outreach– TrainingTraining– Volunteer time and associated costsVolunteer time and associated costs– OverheadOverhead

State ROI measures before startingState ROI measures before starting Compare trial software programsCompare trial software programs

QuestionsQuestions??

For more information contact: Sara For more information contact: Sara Sack, University of Kansas, 620-Sack, University of Kansas, 620-421-8367 or ssack@ku.edu421-8367 or ssack@ku.edu