How To Measure Roi On Technology Investments

Companies invest in technology – whether on new equipment or IT-related investments – with hopes of positive returns. But first, there’s a need to measure return on investment (ROI) as these investments gobble up time, money, and various resources in the organization. Here are some ways to measure properly and effectively.

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Simply put, ROI = net gain/cost. For instance, one spends $100 and makes $150. The net gain is $50. Following the equation, the ROI is 50 percent. In assigning the costs and benefits, many of the numbers will be guesses as well as approximations, and there will be alternate scenarios needing to be considered along the way. For example, if the staff saves time by 20 percent due to IT, how does that figure in the equation?

Costs can include money, time, disruption, as well as opportunity. Opportunity cost pertains to the missed chance of doing something else that might have made or saved money for the organization. It’s also important to add in the costs of training and support, as well as the proper disposal of the old technology.

The financial benefits of IT investments can fall into several buckets, including revenue enhancements, cost reductions, cost avoidance, capital reduction, and capital avoidance. Technology can definitely pave the way for new or more revenue streams along with a greater reach of the company’s services. Its tools can free up employee time and energy for more profitable, value-adding work, and improve overall quality services to clients.

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Note that some ROI analysis may not fully capture these benefits, and thus need to tweak the equation for greater accuracy and comprehensiveness in results.

Alex J. Ness has years of experience in the areas of private banking, wealth management, and investment. He holds a degree in Business Administration, with focus on finance and management, and obtained his MBA at the American College of Switzerland, concentrating on International Business Management. More articles like this here.