Saw an interesting video presentation on BNET (www.bnet.com) named “Calculating ROI”.
What is ROI?
It is an analysis tool to compare the expected benefits of a project against the costs.
Its purpose is to help calculate if / when a project will turn £ into £££.
To reliably use ROI you need to have certainty in both the costs involved and the benefits to be achieved.
The simple ROI calculation can be expressed as:
ROI = return / investment
An interesting point raised in the presentation was that of remembering to include Cost of Capital (http://en.wikipedia.org/wiki/Cost_of_capital) in the calculation.
So for example if the return is estimated at £250,000 over 3 years the actual return after factoring in Cost of Capital could actually be £215,000.
