Seeking elusive ROI for software projects: return on software investments is complicated by different definitions of ROI, by "hard" and "soft" returns and by difficult measurements. But it's a calculation that should be done frequently.

• Author: Ali, Tehseen
• Position: TECHNOLOGY ROI - Return on investment

Return on investment (ROI) can be difficult to pin down, and it's extremely subjective to an individual company's goals, strategic vision and problems. But one thing remains constant--determining ROI is a must when trying to get funding and consensus to implement new software.

What makes ROI so hard to calculate? Several factors are involved, but the most significant is the fact that there is no real definition. While everyone agrees on what the letters ROI stand for, there is no complete agreement on the definition of the term. According to financial dictionary standards, ROI is the discounted present value of future cash flows generated by money spent. Or, using a more simple definition, ROI is a measure of cash collected to cash spent, adjusted over time.

Or even beyond that: deduct the sum total of your operating expenses from the sum of your benefits; if you get a positive number, you've got ROI. A negative number means time to re-think the project.

Where does that leave us when trying to find this elusive ROI for software projects? The key is in the definition. Find a definition you're comfortable with that meets corporate goals and aligns with business processes, then use it. Just remember to include your definition of ROI when presenting your plan to others--as you can see from the various definitions mentioned, everyone has a different interpretation of ROI.

ROI: The Big Picture

When building your business case for software, remember that you are selling more than just a tool; you are selling change, improved efficiency and technological advancements for your organization. This means you need to have all the evidence ready to present to senior management--including having consensus from all the stakeholders whom this new tool will affect.

For example, if you were building a case for an e-procurement tool, you want to include:

* hard ROI calculations that can be used for measurement after the implementation;

* a timeline for implementation and payback;

* benchmarking data to give senior management an idea of the improvement expected; and

* the overall value of this particular investment.

One thing you will want to figure into your business case is flexibility. Implementing new software and new policies can sometimes hit roadblocks that will cause your timeline to go off course. Plan for these in advance by building this flexibility into your business case by showing the impact if the implementation gets delayed, a key stakeholder...