Wednesday, September 14, 2011

What key financial metrics are used in typical Alinean ROI / TCO Calculators / Sales Tools?

In an ROI / TCO Tool, various metrics can be used to summarize the business case and economic justification.

The most often used metrics include:

·         Total Investments – the total cost of the planned project, including initial capital and labor costs, on-going management and support, evolution and eventually retirement costs

·         Total Benefits – the total savings, cost avoidance, incremental margin and other tangible (quantifiable) business benefits over the selected analysis period

·         Cash flow – a tally of the benefits of the project minus investments

·         ROI – a ratio of the net benefits / total investments

·         Payback period – the duration, from the start of the project, to reach positive cash flow from the project

·         NPV Savings (the cash flow represented in today’s dollar terms – discounted for inflation and opportunity cost of money)

·         Internal Rate of Return (IRR) – the interest rate that the proposed investment effectively generates

·         TCO Savings – the difference in total costs between the two configurations being compared (tallied over the selected timeframe).

Other key performance indicators, financial metrics and ratios can be included to highlight various aspects / value of the proposed solutions.

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