Return on Investment: Initial Considerations for Measuring CostSavings of AT Reuse

Sara Sack Director of Assistive Technology for Kansans May 25, 2007

What is ROI Analysis?

One of several approaches to building a financial business case (Solution Matrix) A performance measure used to evaluate the efficiency of an investment or A performance measure to compare the efficiency of different investments.

What is ROI Analysis? (cont.)

ROI is a traditional financial measure to determine benefit to the business

Benefit of training Benefit of asset purchase decisions (computer systems or a fleet of vehicles) Marketing, recruiting programs Example: Floridas DOE is evaluating measures of performance in light of resources allocated to individual schools and districts

What is ROI Analysis? (cont.)

ROI

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

Simple ROI vs. ROI

The benefit (return) of an investment is divided by the cost of the investments; the result is expressed as a percentage or a ratio. This is referred to as simple ROI.
ROI= Gains from investment Cost of investment Cost of Investment
$700,000 - $500,000 = 40% $500,000

Simple ROI Investment Example

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

Simple ROI Investment Example

$50/$1,000 $1050 - $1000 = 50 = 5% ROI $1000 $1000 $20/$100 $120-100 = 20 = 20% ROI $100 $100

ROI (or Complex ROI)

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

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

Considerations for Using ROI

Locate software programs designed to help managers identify total benefits and total costs Establish measures and state them publicly before calculating ROI Determine time periods and state them carefully. Determine appropriate calculations to be made. Be aware that shorter or longer time periods may produce quite different ROIs.

Next Steps for ATK Related to ROI

Review electronic management software including RADDIE, Solution Matrix, and others Determine Internal and External benefits and costs
Staff/labor costs Storage Transportation/delivery costs Repair costs Supplies Marketing and outreach Training Volunteer time and associated costs Overhead

State ROI measures before starting Compare trial software programs

Questions?
For more information contact: Sara Sack, University of Kansas, 620421-8367 or ssack@ku.edu