If you are evaluating a potential project that requires an initial investment and is expected to generate a profit over time, it is customary to evaluate its ROI or return on investment. Even though the concept of ROI originates from finance, when evaluating the potential return between different investment opportunities, the same concept may be used to justify any type of investment. In particular, an investment in software can be evaluated through the ROI lens – examining how much the project would cost vs how much the software could bring in benefits in the future.
Return on investment is a percentage calculated by the following formula:
ROI = Net profit from the investment / Capital invested × 100
The net profit means any financial gains less the cost of the investment:
Net profit = Profit from the investment – Capital invested
Time is of the essence when working with the ROI concept. Let us say you buy a money printing machine for 120 dollars, but the machine can only print 20 dollars per month. If you calculate the ROI after the first month, you will get a negative return. But if you do the same after a year, your ROI would be 100% – that means that by that time you would have covered your initial cost (0% ROI) and made the amount of your initial investment in profits.
Let us apply this concept to a potential intranet project. In previous posts, we examined in detail how an intranet can bring you profits and how you can estimate them. We also examined possible project costs. Let us now estimate the return on investment for a digital workplace project for a mid-sized company. The estimates below are mostly based on the experiences of our clients, but we have synthesized several use cases for illustration.
A mid-sized company of 700 employees is experiencing a 6% voluntary turnover rate. The costs of recruiting are estimated at 53% of an average employee’s salary and it takes 124 hours of various processes and training to on-board an employee. In terms of employee productivity in the workplace, the company estimates on average that 30% of time is spent working with emails, 15% in meetings and 20% in searching the company’s information.
The company is studying the introduction of a digital workplace through a companywide intranet. Based on use cases and benchmarks, the expected results from the new intranet, if it is a success, are as follows:
The new digital workplace is expected to impact positively employee turnover, on-boarding, employee engagement and employee productivity, generating the following profits:
In terms of costs, the company has estimated its in-house investment in time and personnel and obtained a vendor quote. This covers all phases of the project from the initial investment to the project’s on-going costs.
Based on the above assumptions and calculations, the intranet project is expected to become profitable in its first year in production, reaching 1000% ROI in year 3.