ROI: Return on Investment or Risk On Investment

April 28, 2009 · Filed Under Thoughts  - 1 Comment(s)

I find it fascinating how people sometimes determine return on investment on a project.

As you already know Return On Investment provides the monetary benefit of spending on a project.  Understanding the true Return On Investment helps make good decisions on which projects to fund, which to kill, etc.

Unfortunately many people deal with ROI as Risk on Investment. Risk On Investment starts out with good intentions.  Because we are engineers we can find all kinds of ways to make our software “better.”  But if “better” doesn’t matter to stakeholders, or if we do a poor job quantifying the costs or the benefits we can mislead ourselves and out organizations.

I recall one of the worst examples I have witnessed.  The developers determined there was a way to make each of many thousands of workers more efficient in filling out their time cards.  They rejoiced at the thought of saving each of the thousands of employees over a minute each per day.  That is thousands of minutes and dozens of hours per day, they determined.  So the project began, overran, and when finally delivered didn’t make any difference in the corporation.  People work a day in a  day.  That minute was meaningless.  This should have been caught up-front.  But no meaningful process for ROI was in place.

Using effectiveness metrics to determine ROI can help… that is how much the project will impact profits.

I have been interested to see how people are using SEER’s estimate by comparison function to determine the probable Return On Investment on projects.  Some even determine the cost of a potential portfolio, and the value and use these as critical for choosing which projects to fund.


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One Response to “ROI: Return on Investment or Risk On Investment”

  1. daisy on March 28th, 2011 7:47 pm

    http://www.galorath.com/wp/roi-return-on-investment-or-risk-on-investment.php

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