Calculating a Simple ROI for Your Next Project

Designing and buildings networks is a great job and career. However, all networks are built for a purpose, most often a business purpose. Your network serves your business or organization allowing people to communicate and accomplish business goals. When proposing new network projects, decision makers (i.e. managers) want to know what business benefits they will get from a project. While there are many different business benefits - such as increased productivity, better customer service, and strategic relationships - one of best benefits to demonstrate to management is Return on Investment (ROI). ROI is a simple and quick objective measurement of a project's benefit. ROI can get very involved, and less objective, if you try to include estimations or unverified monetary benefits. So, keep it simple. Focus on real dollars. There are three things you need to calculate a simple ROI: 1 - How much you spend now. 2 - How much will you spend after this project is complete. 3 - How much do you need to invest (spend) to do the project. With this information a simple ROI can be done that managers will love. An example will help. Let's say you are going to deploy a new WAN and you need a ROI. Your current WAN costs are $2,400,000 per year ($200,000 monthly). After the project is done your new WAN costs will be $1,800,000 (saving $600,000 per year or $50,000 per month). To deploy this new WAN you will have to spend $500,000 to cancel existing circuit contracts, labor, and new hardware: 1 - $2,400,000 2 - $1,800,000 3 - $500,000 The ROI will show how long it takes to start saving money because of the project - i.e. how long it takes to start making money on your investment (in this case the investment of $500,000). That's the key - how long. It's a simple calculation - subtracting your monthly savings from your initial investment costs.

In this case it takes 10 months to recoup your investment of $500,000. If that's good or bad will depend on your business environment; the managers can make that decision. Generally, 10 months is a little long. In the case of a new WAN where carrier contracts are typically 3 years long, a 10-month ROI is almost 30% of the contract length; probably not good enough. I would want that ROI to be 6-months or less. This same idea can be used for other projects or proposals you have. Say you want to deploy WAN acceleration. Because of this new technology you can decrease bandwidth costs. Use the same concept above. The initial investment is the cost of the new gear and the ROI is based on circuit cost savings. ROI is a great, simple tool to show managers and sell your project. It demonstrates direct benefits to your company and shows managers you understand more than routing protocols and IOS commands.


Copyright © 2007 IDG Communications, Inc.

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