TANGIBLE EXAMPLE

ROI of IT projects: 3-step calculation example

Investment in IT is crucial in today’s dynamic markets. But you need the ROI for budget approvals. How?
Take a look at this 3-step calculation example.

CLAIRE UMNEY • 21.09.2016

There is so much going on these days – from technological advances and globalisation to new competitive
environments and various, global security concerns. The right investments are crucial. And to get your budget
approved, typically, you will need the ROI.

So without further ado, I will share this actual and highly useful ROI calculation example with you. It was set up
by Rainer Hackstein, one of our experienced supply chain consultants at AEB. Rainer emphasised that there are
several ways of calculating an ROI – and our version demonstrates just one of the possible ways to do it.

The following example is based on a multinational corporation that is implementing a new software solution.
The area of IT deployment is logistics – for procurement and distribution.

Calculating one-time and recurring costs, tallying up the potential savings, and comparing the numbers: this is
how you find out whether your IT project will be profitable.

OK? Let’s do it:

Calculating ROI of IT projects: Step 1 (costs)

To calculate the invested capital, you must first determine the investment amount subject to capitalisation. This
is outlined in the following table on the right (item A). It includes the costs of licensing the software, for
example.

The investment amount subject to capitalisation can also be zero. This is the case with a leased solution, for
example, for which annual or monthly payments have been negotiated. Such payments would then be included
as annual licensing costs in the cost assessment under item B.2.

Another major category is the implementation costs (item B.1): this includes costs for internal and external
services, project management, software installation, the adaptation of interfaces, and training costs.

The third category is the annual operating costs (item B.3): examples include the support costs for the software
(typically a defined percentage of the purchase price) and hardware, leasing costs for servers, and costs for
database licences.

Getting together all cost components is hard work. It’s good advice to work with the quotes submitted by
providers. Nevertheless, it is common for implementation costs in particular to get out of hand. The primary risk
of cost deviations stems from change requests in the middle of a project or misunderstandings in the definition
phase. Most risks can be managed through strict project management. But some companies still factor in a
lump-sum risk premium when calculating costs to be safe.

Calculating ROI of IT projects: Step 2 (savings)

It is harder to estimate the savings – or the profit, or the value that the IT investment is supposed to generate.
Such estimates are highly case-specific, of course. In all likelihood, however, the benefit of implementing
logistics software lies in improved processes and the automation of manual tasks. Using software to manage
automated processes, and replace manual verification, research, searches, and data entry.
Calculating ROI of IT projects: Step 3 (comparison)
Best for last, here comes the easiest step of all three: the comparison of cost and savings. And hopefully, it
returns with a good result for your planned IT investment.

And that’s it :).

I personally find it rather useful to have examples to look at. If you feel the same and are currently preparing an
IT business case, I hope this ROI calculcation example comes in handy. I wish you success for your business
case and (hopefully) for the upcoming IT implementation, too.

Let me know if you have any questions or comments, I look forward to hearing from you on LinkedIn.

Digitizing global trade and logistics processes with ROI: AEB solutions overview
Latest articles
 DOW JONES WEBINAR • 03.02.2020
1 The one solution you need to monitor trade compliance
NEW RULES FOR TRADE • 03.02.2020
2 Five major changes in Incoterms® 2020
AEB NEWS BRIEF • 27.01.2020
3 The AEB News Brief
FUTURE OF SUPPLY CHAINS • 13.11.2019
4 Rise of the machine
CASE STUDY • 10.11.2019
5 How Atotech refined its export controls
ALL IT TAKES IS SHARING • 08.11.2019
6 The key to unlocking supply chain potential

Similar content
DOW JONES WEBINAR

Automation now key to due diligence

30.03.2019

Our Mark Brannan tells a Dow Jones webinar audience that software-based compliance screening paired with a
deep pool of industry data and news is the best solution for ensuring your company ...
 CARRIER CONNECTION

Visible impact
29.03.2019

A major industry study finds real-time visibility into orders and shipments is increasing in importance. Our Ted
Roth tells you how to take advantage right now. ...

CASE STUDY

Evatec's AEB Connection

28.03.2019

How the Swiss “Thin Film Powerhouse” relies on our Carrier Connect software to manage the forwarders and
parcel services that reliably transport spare parts around the world. ...

BOOM NOT GLOOM

Keys to trading success

03.03.2019

Despite some dour forecasts, our leading global trade experts give you their best advice on how to turn 2019
into a solid year for your company no matter where your cargo lands. ...
 Phone
+49 711 72842 0

Email
info@aeb.com

Service Portal
service.aeb.com

Newsletter Email SUBMIT

© AEB 2019 About this site Data protection General T&C

Phone
+49 711 72842 0

Email
 info@aeb.com

Newsletter Email SUBMIT

© AEB 2019 About this site Data protection General T&C