Our Top 10 Tips for ROI Optimisation
George Le Souef, CFO
Align ROI with Strategic Goals:
Ensure the investment aligns with the company’s broader strategic goals. Assess whether the project contributes to long-term growth, market expansion, innovation, or operational efficiency.
Incorporate Both Tangible and Intangible Benefits:
While financial returns (tangible) are important, don’t overlook intangible benefits such as employee satisfaction, brand reputation, or innovation capacity. These often provide long-term competitive advantages.
Develop Clear, Measurable KPIs:
Define KPIs that can be measured and tracked. Ensure there’s a system in place for ongoing measurement so that results are tied to actual performance rather than projections.
Use Conservative Assumptions:
Be cautious with assumptions related to cost savings, revenue generation, or time efficiencies. It's better to underestimate potential gains than to over-promise, so rely on conservative, well-supported data.
Benchmark Against Industry Standards:
Look at industry benchmarks, competitor performance, and historical data when projecting returns. This helps to ensure your targets are realistic and aligned with market conditions.
Factor in Risk and Uncertainty:
Use sensitivity analysis to evaluate how changes in key variables (e.g., cost, market conditions, project timelines) will impact ROI. This will give you a better understanding of potential risks and worst-case scenarios.
Involve Cross-Functional Teams:
Collaborate with stakeholders across departments—finance, operations, HR, and marketing—to gain different perspectives on the potential benefits and risks of the investment.
Consider Depreciation and Taxes:
As equipment or buildings wear down over time, their value decreases, which is called depreciation. This, along with how taxes affect your expenses and income, can change your overall costs and savings.
Consider an Opportunity Costs assessment:
Opportunity cost means thinking about what you could earn if you spent your money on something else. When calculating ROI, it's important to compare how much better this project is compared to other ways you could invest the money.
Regularly Review and Adjust:
Continuously monitor and adjust the ROI assessment as the project progresses. This allows you to adapt to any changes in market conditions or unforeseen challenges and refine your projections accordingly.