Return on Investment (ROI)

# Return on Investment (ROI) - Information Technology Return...

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Information Technology Return on Investment (ROI)

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ROI Defined ROI: the ratio of money gained or lost on an investment relative to the amount of money invested. Benefit – Cost = ROI Cost If ROI is negative, poor decision, if ROI is positive, good decision. May take more than one year to become positive.
ROI in Terms of Cost Avoidance Cost Avoidance : Action taken to reduce future costs, such as replacing parts before they fail and cause damage to other parts. Cost avoidance may incur higher (or additional) costs in the initially but the final or life cycle cost would be lower. Savings / Cost = ROI When greater than one, good decision. When less than one, bad decision.

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Quick Mathematical Example If it costs \$10,000 in training sales staff to sell more increases sales \$30,000 per year, the ROI is \$30,000 – \$10,000 = \$20,000 = 2 or 200% ROI per year \$10,000 \$10,000 General private industry practice is to quantify an ROI in terms of three years. So, over 3 years your \$10,000 training yielded \$60,000 in additional sales
Cost Avoidance Example ROI in cost avoidance example: You want to implement a security system in place of having physical

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Return on Investment (ROI) - Information Technology Return...

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