ROI of IT projects: 3-step calculation example

There is so much going on these days – from technological advances and globalization to new competitive environments and various, global security concerns. The right investments are crucial. And to get your budget approved, typically, you will need the ROI.

So without further ado, I will share this actual and highly useful ROI calculation example with you. It was set up by Rainer Hackstein, one of our experienced supply chain consultants at AEB. Rainer emphasized that there are several ways of calculating an ROI – and our version demonstrates just one of the possible ways to do it.

The following example is based on a multinational corporation that is implementing a new software solution. The area of IT deployment is logistics – for procurement and distribution.

Calculating one-time and recurring costs, tallying up the potential savings, and comparing the numbers: this is how you find out whether your IT project will be profitable. Let's guide you through it step by step.

Calculating ROI of IT projects: Step 1 (costs)

To calculate the invested capital, you must first determine the investment amount subject to capitalization. This is outlined in the following table on the right (item A). It includes the costs of licensing the software, for example.

The investment amount subject to capitalization can also be zero. This is the case with a leased solution, for example, for which annual or monthly payments have been negotiated. Such payments would then be included as annual licensing costs in the cost assessment under item B.2.

Another major category is the implementation costs (item B.1): this includes costs for internal and external services, project management, software installation, the adaptation of interfaces, and training costs.

The third category is the annual operating costs (item B.3): examples include the support costs for the software (typically a defined percentage of the purchase price) and hardware, leasing costs for servers, and costs for database licenses.