Effective ROI – Part 2: What Makes an ROI Statement Great

The market environment has swung from a seller's market to a buyer's market as growth rates decline and companies shift from a strategy of managing growth to one of protecting market share.

IT buyers are under considerable budget pressures due to a transition from historical over-buying to a more disciplined approach to spending.

Technology is now seen as an enabler to achieve real business value, and IT purchases must demonstrate that value and show financial impact.

Return on Investment (ROI) in today's market environment means defining the business value of an IT investment. ROI must transcend the base levels of cross-industry technology and business benefits to show vertical industry and business process-specific benefits from the investment under consideration.

ROI statements should provide an accurate representation of business value, appeal to the shared decision making model, be believable, and capture the total investment. A comprehensive ROI statement needs to define business value along the three key dimensions of how much, how soon, and how certain.

What Makes an ROI Statement Great

Quantifying added business value along its three dimensions of how much, how soon, and how certain is key to an effective ROI statement. Project viability measures such as NPV and Payback Period backed by comprehensive cash flow statements from all components of the ROI model are key to answering the first two questions of how much and how soon.

To answer the third question requires that the ROI statement provide a Risk Adjusted view to partially answer the how certain question. A more complete answer to that question requires that the ROI statement define the response to the first two questions of how much and how soon with an answer like 'We are 95% confident that we will be able to achieve a Net Present Value of $3.5 Million with a Payback Period of 9 months'.

Individual benefit statements detailing improvements in specific business processes are key to an effective ROI statement.

An effective ROI statement should provide a good executive summary as well as complete detail on all benefit statements and underlying assumptions, parameters and costs. In addition, details on the ROI methodology are key for those who are reading the ROI report but did not participate in the process.

Graphs and charts often do a better job of communicating than tables of numbers. An effective ROI statement must provide charts and graphs illustrating benefit and cost cash flows as well as others detailing the cash flow contributions from various benefit sources.

The ROI statement is a financial document, and like any good financial document the ROI statement must be protected from tampering. An effective ROI statement will be protected from changes to bolster its believability.

Learn more about Fujitsu's ROI tool - ROI Analyzer