How to Conduct Return On Investment Assessments to Justify IT and Other Programs

J. Kuong and MASP Staff

ISBN:  ISBN  0-940706-61-X                                                    - Publication MAP-52



1.     Well-Managed Organizations Demand a Return On Their Investment – ROI

1.1  Background     

1.2   What Is ROI?                 

1.3   ROI and the Information Technology Field

1.4      Where Does the Money to Justify New Programs or Ventures Come From?     

1.5   Intangible Benefits as a Source of Profits       

1.6   Key Sources of Increased Revenue and Profits               

2.     Components and Considerations in ROI Estimation

2.1   Chapter Objectives        

2.2   What Enters Into an ROI Estimation 

2.3      A List of Elements and Factors that May be Required to  Estimate ROI Depending on the Approach and Method Used                

2.4    Explanation of Key Terms 

        1.  The Upfront of Initial Investment       

        2.  The Savings, Cost Advantage, Income or Savings Stream

        3.   Intangible or Imponderable Benefits            

4.    The useful Project Life or the Period of Time over which The Venture/project will be Viable    

        5.  The Period of Time Before the program is Installed and Before It Provides Benefits or Savings – Time Before Zero     

        6.  Recovery Period   

        7.  Payback Period   

        8.  Cost of Capital              

2.5   Considerations in Justifying Less Evident Areas Such as

        Physical and IT Infrastructure Using Intangible Factors             

2.6   Importance of Developing a Sound Justification Document         

2.7   Key Elements of a Justification Document        

2.8   A Summary of Success Elements in Selling and Justifying Programs to Management Using ROI Concepts   

2.9     What is the Value Proposition – Tangible and Intangible Values        

3.     Approaches for Assessing Return on the Investment

3.1      Background               

3.2      Chapter Objectives

3.3      Classification of ROI Approaches               

3.4      Cost Recovery  

3.5      Time to Recover Investment

3.6      Ratio Approaches               

3.7      Time Value of Money – Present Value        

3.8      Intangible Factors or Benefits    

3.9      Scenario Approach  

3.10   Other Approaches - Rapid Economic Justification (RJE)     

3.11   Comparing ROI Figures From Several Methods    

3.12   Assessing ROIs Presented By Vendors or Other Potential Business Partners            

4.     Methodologies and How to Apply Them

4.1   Chapter Objective          

4.2   The Most Commonly Used Methodologies  

4.3      Methodology for Justifying Ventures or Proposals Using the More Complex ROI Methods that Consider the Time Value of Money and the Projected Useful Project Life                

5.     Illustrations of ROI Estimation By Various Methods

5.1   Chapter Objective           

5.2   Methodologies Selected for Illustrating the Computational Procedures                

        1. Payback Method     

        2. Return on Investment – Simple Method      

        3. Internal or Interest rate of return        

        4. Present Value Approach – Time Value of Money  

        5. Scenario Approach for Justification               

5.3      General Commentary on the Merits and Drawbacks of the

ROI Methods Illustrated in This Chapter    

5.4.  A detailed Illustration of the Present Value ROI Method      

        Step 1. Prepare a Base (Reference) Case on the Present Situation           

        Step 2. Define the Key Proposed Program Objectives         

        Step 3. Describe the Proposed Program Solution            

        Steps 3 and 4. Program Solution and Costs               

        Step 5. Proposed Case 

        Step 6. Benefits            

        Step 7. Calculate Cost Effectiveness or Profitability        

5.5   A detailed Venture Justification Illustration         

5.6      Program Profitability Illustration 

5.7      Discounted Cash Flow Method (DCF) Fundamentals            

5.8   Illustration of the Use of the Discounted Cash Flow ROI Method             

5.9   Optimizing the Level of Service or Benefits            

5.10   The Development of Costs and Benefits for Venture Justification     


A.          Literature References

B.          Glossary of Terms  

C.      Index      

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