From the course: Construction Technology: Establishing ROI

Understanding ROI

From the course: Construction Technology: Establishing ROI

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Understanding ROI

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- [Instructor] A return on investment is a measurement used to evaluate the profitability of an investment. For many of us in technology roles, we're not always looking to show the entire profitability of an investment, but trying to understand if the investment we're making in a particular piece of software is worth continuing to invest in or renew, determine if we should expand its usage, or identify if we need to invest more time and effort into an implementation. Maybe we need to explain to our supervisor how much value our entire team is bringing to the company through technology. Or we might simply be trying to calculate when we've made our money back on an investment and don't need to continue tracking it. Most of the references I've read show ROI calculated as the return divided by the investment cost. This seems simple, but for myself, I actually find quantifying those two variables to be very challenging. It's not as simple as investing money in something and seeing how much money you get back in the end. Many factors that add up to the investment cost get overlooked. Too often, we only looked at the hard cost of software and hardware, and we don't take into account training time or setup from our technology staff. For the return, it's probably even more difficult to quantify. Some things do too much to explain and track simply. You might be saving time with a particular tool, but tracking that time isn't always possible. Or you might be winning more work, but a project win is usually from a combination of things and not one single investment. If you're in a position to report a return on a technology investment, make sure to know who you're reporting this to. Then ask them, what do they want to know about the ROI? They may want to know how much of a return something gives them, or they may only care to know that they're not completely wasting their money. A conversation could save you a ton of time collecting data and figures to prove a return that they may not actually care to know. When I try to calculate a return on my technology investments, I define what I'm using this piece of technology for to create a story regarding the return on investment. Did you invest to avoid a cost somewhere else, speed up a process, win more work? Defining what you're trying to prove will help you to understand what to track. Once you've determined how much of return you need to show as a return and your message of why you made the investment, you need to determine what you can track and how you can track it for your return. Sometimes if something's not trackable, or it may take more effort than it's worth to be exact in showing the value in your tool, it's okay to estimate a return on your investment through a logical story. Talk to people. Have anecdotal data that you can use to estimate value.

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