What Is ROI Anyway?
from the and-how-do-you-calculate-it? dept
Here are two articles that I (completely randomly) saw one after the other – and which clearly relate to each other. I’ve talked often about the importance of cost-benefit analysis, saying that many companies seem to do one or the other – but rarely both. Well, part of that is figuring out an ROI (return on investment). The problem is that no one seems to know what ROI is. Even when they do, there are so many ways to calculate it you can come up with all sorts of different results. The fact is that making a useful ROI determination is quite a bit “art” and a few parts “science”. Anyone who relies solely on a calculation is going to miss something – but not understanding the calculations is likely to hurt just as much. I think that understanding and calculating ROIs is a useful excercise. Making decisions based solely on ROI determinations is, however, short sighted.
