Formula for Calculating ROI on a New Software Investment
The decision to invest in new software often involves significant capital and operational changes, making the assessment of its financial return, or **Return on Investment (ROI)**, a critical step. A clear and accurate ROI calculation helps justify the expense, prioritize projects, and measure the long-term success of the implementation.
The Standard ROI Formula
The fundamental formula for calculating ROI is a ratio that compares the net gain from an investment to its total cost. For software investments, this is adapted to consider the specific benefits and costs associated with the technology.
The universal ROI formula is:
$$ROI = \frac{\text{Net Benefit of Investment}}{\text{Cost of Investment}} \times 100\%$$
In the context of a new software implementation, the formula can be expressed as:
$$\mathbf{ROI} = \frac{(\text{Total Financial Benefits} – \text{Total Software Costs})}{\text{Total Software Costs}} \times 100\%$$
The result is expressed as a **percentage**, indicating the return for every dollar invested. For example, an …
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