Java Reference
In-Depth Information
▪ Enabling features that do not directly generate cash themselves but aid in creating the
business intelligence can drive more profitable decisions.
The traditional pillars of calculating ROI include the following:
Cost-benefit analysis
Determining the real value of a proposed solution by examining the monetary benefits
against the costs of deriving those benefits. This requires measurement of a variety of
factors throughout the business, not just the development process.
Net-present value
A method of capital budgeting that focuses on figuring the time-value of money against
present-day terms. This is used to determine the benefit of long-term projects.
Opportunity cost
Opportunity cost
This represents the amount of money it costs you to obtain the new product as compared
to the money you would have made, if you had instead invested in a competing product. A
common example of opportunity cost is that just leaving your money in the bank allows it
to collect interest. But if you choose to invest that money in order to make more than you
can in interest, that interest is still money lost if you withdraw it to invest.
This all gets very complex rather quickly, and goes far beyond the scope of this topic. The im-
portant thing to realize is that it's difficult enough to determine an ROI for a standard software
project, despite the fact the constraints and structure of doing so are fairly well understood at
this point. In general, managers focus on a fairly limited data set, regarding the proposed pro-
ject in terms of costs and future expected benefits derived from features, consolidation, time
to market, and other factors just shown.
Frequently, cost-benefit analyses are calculated with careful, perhaps even fanciful precision.
I was part of a software project where a small portion of the ROI (a couple hundred thousand
dollars) was attributed to its new user interface, in which users would have to make only three
clicks instead of five to perform a certain use case. This portion of the ROI was determined
thusly:
▪ T = Total amount of time in seconds it currently takes to perform the use case with the
existing “five-click” user interface, averaged over a small sampling with a stopwatch.
▪ S = Time in seconds it would take to complete the use case with the “three-click” user
interface, or roughly 3/5 T.
▪ U = Projected total number of users performing the use case.
▪ W = Average hourly wages of said users, divided by 360 to determine wages per second.
