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For some people working with numbers can be intimidating. But if youve identified and clarified the business need, gathered the right team, and pressure-tested your assumptions with your subjectmatter experts, this part wont be hard. In fact, in most cases, Excel does the calculations for you. Your job is to gather the right numbers. How to get started Before you calculate the return on investment, youll need to accurately project costs and benefits. Use the next worksheet, "Costs & Benefits" to capture those numbers, replacing the example numbers with your own. Then use one of the other worksheets to calculate the ROI for your project. The numbers you enter into the "Cost & Benefits" will auto-populate into the ROI worksheets (except for Type 0 and Type 1 Payback). If you're not sure which ROI approach to use, reference the chart below. For more information in the HBR Guide to Building Your Business Case , read: Chapter 9: Estimate Costs and Benefits Chapter 10: Calculate ROI FOUR WAYS TO CALCULATE ROI Method Answers the question Expressed in How many sales do we need to recoup the investment? How long will it take to recoup the investment?
Breakeven Analysis
Units sold
Payback Period
Months or years
What rate of return will Internal Rate of this project deliver over Return (IRR) its lifecycle?
Percentage
imidating. But if youve identified and clarified the sure-tested your assumptions with your subjectmost cases, Excel does the calculations for you.
ull need to accurately project costs and benefits. ture those numbers, replacing the example
the ROI for your project. The numbers you enter he ROI worksheets (except for Type 0 and Type 1 o use, reference the chart below.
Typically used for Market-focused projects, such as product development; entrepreneurial endeavors Projects with a heavy upfront investment, such as facilities projects; productivity projects that accumulate benefits over time Projects with large expenditures Projects that the company reports on externally, especially those that require you to borrow money
Use this worksheet to capture your costs and benefits. Then, use one of the worksheets on the Typically when filling out this worksheet, each column represents a calendar year with the first c List your costs and benefits by deleting the category names below and adding your own (mouse auto-populate onto the ROI worksheets (except for Type 0 and Type 1 Payback). Insert rows as needed for each cost or benefit category. If you add rows, you will need to do th until you copy the formulas from a similar row. Include the total or annual amount in Column F and then spread the costs into appropriate year In the Project Investment & Operating Cost categories, enter project costs as "positive" number In the Project Benefits categories, enter benefits as "positive" numbers and any off-setting costs In Column S note the rationale, any assumptions you've made, and the source for each number For more information in the HBR Guide to Building Your Business Case, read Chapter 9: Estim
Project Investment Capital Expenditures Diseo Desarrollo Total Capital Costs Project Expense (Onetime Expense) Compra de dominio (5 aos) Compra de Servidor Total Project Expense Total Project Investment Operating Costs (OpEx) Mantenimiento Rediseo Total Operating Costs Project Benefits (amount & timing) Incremento de Ventas Disminucin de costos Total Benefits Amount $ 175 $ 85 $ Annual Total $ Cumulative Total $
$ $ $ $ $ $ $
Amount 5,000 10,000 15,000 2,500 3,200 5,700 20,700 Amount 6,200 7,500
$ $
0 5,000 10,000
1 $ -
$ $
2,500 3,200
20,700 0
1 1,200
$ $
$ 0
$ $ $
(20,700) $ (20,700) $
e of the worksheets on the tabs below to calculate ROI. calendar year with the first column being the current year. nd adding your own (mouse over the red triangle for a quick explanation of categories). The information you enter o 1 Payback). rows, you will need to do the same on the ROI calculation worksheets. Inserted rows will not auto-populate onto othe
costs into appropriate years. Make sure to check the estimated total in column F against the summed total in colum costs as "positive" numbers, the spreadsheet will convert those to costs. ers and any off-setting costs or losses as "negative" numbers. he source for each number. ase, read Chapter 9: Estimate Costs and Benefits.
Cal Year
Cal Year
Cal Year
2 2,000
4 1,500
5 2,000
$ Cal Year
$ Cal Year
$ Cal Year
$ $ $
$ Cal Year
$ Cal Year
$ Cal Year
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $
27,512
$ $ $
27,512
$ $ $
27,512
$ $ $ $ Cal Year $ $ $ $ $
2,500 3,200 20,700 Total 8,200 7,500 15,700 Total 38,912 25,000 63,912
$ Cal Year
$ $ $
27,512
$ $ $ $
Breakeven Analysis
Entries will auto-populate from the "Cost & Benefits" worksheet. If you added rows to the "Cost & Benefit" Worksheet you must add the rows to this sheet also, and copy the data from the "Cost & Benefits" Worksheet into this worksheet. Breakeven analysis does not require that the costs and benefits be spread over some number of y Instructions for calculating are at the bottom of this spreadsheet. For more information in the HBR Guide to Building a Business Case, read the "Breakeven analys section in Chapter 10: Calculate ROI.
Project Investment Capital Expenditures Diseo Desarrollo 0 Total Capital Costs Project Expense (Onetime Expense) Compra de dominio (5 aos) Compra de Servidor 0 Total Project Expense Total Project Investment Operating Costs (OpEx) Mantenimiento Rediseo 0 Total Operating Costs Project Benefits (amount & timing) Incremento de Ventas Disminucin de costos 0 Total Benefits
$ $ $ $ $ $ $ $ $
Amount 5,000 10,000 15,000 2,500 3,200 5,700 20,700 Amount 6,200 7,500 -
$ $ $
Amount $ 175 $ 85 $ -
To calculate: 1) First determine the gross profit margin from selling one unit of your product: Revenue - COGS = gross profit margin. 2) Then determine the net project cost by adding an annual increment of the operations costs (Ro 21) to total project investment (Row 15). 3) With those numbers calculate how many units you need to sell for your sales benefits to equal yo net costs: Units sold = net project cost/gross profit margin Round the units sold up to a whole number; this is how many units you need to sell to break even. 4) For an example of a Breakeven Analysis calculation, see the XYZ Energy ROI or ABC MedTec ROI documents.
s" worksheet. eet you must add the rows to this sheet also, and into this worksheet. s and benefits be spread over some number of years. s spreadsheet. g a Business Case, read the "Breakeven analysis"
Estimate Rationale
gin how many units you need to sell to break even. ion, see the XYZ Energy ROI or ABC MedTech
Type 0 Payback
NOTE: For an explanation of the difference between Type 0 and Type 1 Payback calculations, rea Case. Also, please note that only the "Amount" data auto-populates from the "Cost & Benefits" work "Cost & Benefits" Worksheet. If you added rows to the "Cost & Benefit" worksheet you must add the rows to this sheet also, and The Project column should contain all of the Project Investment costs no matter how long the proje The Year 1 column should start on the day the project ends and benefits start, and continues for o anniversary of the project end date. Instructions for calculating the payback period are at the bottom of this spreadsheet.
Project Investment Capital Expenditures Diseo Desarrollo 0 Total Capital Costs Project Expense (Onetime Expense) Compra de dominio (5 aos) Compra de Servidor 0 Total Project Expense Total Project Investment Operating Costs (OpEx) Mantenimiento Rediseo 0 Total Operating Costs Project Benefits (amount & timing) Incremento de Ventas Disminucin de costos 0 Total Benefits
$ $ $ $ $ $ $ $ $
Project
Year 1
$ Project
$ Year 1
Project
$ Year 1
$ $ $
To calculate: 1) Find where the Cumulative Total (Row 30) crosses from negative to positive. The payback valu 2) To determine the fraction, divide the absolute value of the previous year's cumulative total by the Total. 3) For an example of a Type 0 Payback calculation, see the XYZ Energy ROI or ABC MedTech R
1 Payback calculations, read the "Payback" section in Chapter 10: Calculate ROI, in the HBR Guide to Building You m the "Cost & Benefits" worksheet. This is because Year 1 on this worksheet may not have the same start date as Y
rows to this sheet also, and copy the data from the "Cost & Benefits" Worksheet into this worksheet. no matter how long the project takes to complete. ts start, and continues for one year (365 days). Each of the following columns should represent one year of benefit, spreadsheet.
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
$ Year 2
$ Year 3
$ Year 4
$ Year 5
$ Year 6
$ Year 7
$ Year 8
$ Year 2
$ Year 3
$ Year 4
$ Year 5
$ Year 6
$ Year 7
$ Year 8
$ $ $
$ $ $
$ $ $
$ $ $
$ $ $
$ $ $
$ $ $
o positive. The payback value is the latest year with a negative Cumulative Total plus a fraction of the following year ear's cumulative total by the annual total of the following year. Then add this fraction to the latest year with a negativ
sheet.
$ Year 9
$ $ $
Type 1 Payback
NOTE: For an explanation of the difference between Type 0 and Type 1 Payback calculations, rea Case. Also, please note that only the "Amount" data auto-populates from the "Cost & Benefits" work "Cost & Benefits" Worksheet. If you added rows to the "Cost & Benefit" worksheet you must add the rows to this sheet also, and The Year 1 column should represent one year (365 days) from the start of the project. Each of the the project lasts less than one year, the benefits should start in Year 1. If the project lasts longer tha Instructions for calculating the payback period are at the bottom of this spreadsheet. For more information in the HBR Guide to Building a Business Case, read the "Payback" section in
Project Investment Capital Expenditures Diseo Desarrollo 0 Total Capital Costs Project Expense (Onetime Expense) Compra de dominio (5 aos) Compra de Servidor 0 Total Project Expense Total Project Investment Operating Costs (OpEx) Mantenimiento Rediseo 0 Total Operating Costs Project Benefits (amount & timing) Incremento de Ventas Disminucin de costos 0 Total Benefits
$ $ $ $ $ $ $ $ $
Year 1
Year 2
$ Year 1
$ Year 2
Year 1
$ Year 2
$ $ $
To calculate: 1) Find where the Cumulative Total (Row 30) crosses from negative to positive. The payback value 2) To determine the fraction, divide the absolute value of the previous year's cumulative total by the Total. 3) For an example of a Type 1 Payback calculation, see the XYZ Energy ROI or ABC MedTech R
1 Payback calculations, read the "Payback" section in Chapter 10: Calculate ROI, in the HBR Guide to Building You m the "Cost & Benefits" worksheet.. This is because Year 1 on this worksheet may not have the same start date as Y
rows to this sheet also, and copy the data from the "Cost & Benefits" Worksheet into this worksheet. rt of the project. Each of the following columns should represent one year starting on the anniversary of the project s If the project lasts longer than one year, some of the project investment should be in Year 2. spreadsheet. ead the "Payback" section in Chapter 10: Calculate ROI.
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
$ Year 3
$ Year 4
$ Year 5
$ Year 6
$ Year 7
$ Year 8
$ Year 9
$ Year 3
$ Year 4
$ Year 5
$ Year 6
$ Year 7
$ Year 8
$ Year 9
$ $ $
$ $ $
$ $ $
$ $ $
$ $ $
$ $ $
$ $ $
positive. The payback value is the latest year with a negative Cumulative Total plus a fraction of the following year. ear's cumulative total by the annual total of the following year. Then add this fraction to the latest year with a negativ
$ Year 10
$ $ $
Entries will auto-populate from the "Cost & Benefits" worksheet. If you added rows to the "Cost & Benefits" worksheet you must also add the rows to this sheet and Before you begin, determine the number of years that you need to provide the NPV calculation for the sheet (Cell E30). If you need more than ten years, you will need to manually adjust the formula Enter the discount rate as a percentage in cell E29. The discount rate will be provided by your fina The NPV will automatically calculate and display in cell H29. For more information in the HBR Guide to Building a Business Case, read the "Net Present Value
Project Investment Capital Expenditures Diseo Desarrollo 0 Total Capital Costs Project Expense (Onetime Expense) Compra de dominio (5 aos) Compra de Servidor 0 Total Project Expense Total Project Investment Operating Costs (OpEx) Mantenimiento Rediseo 0 Total Operating Costs Project Benefits (amount & timing) Incremento de Ventas Disminucin de costos 0 Total Benefits Amount 5,000 10,000 15,000 2,500 3,200 5,700 20,700 0 5,000 10,000 1 $ $ $ -
$ $ $ $ $ $ $ $ $
$ $ $
$ $ $ $
$ $ $ $
$ $ $ $ 0 $ $ $ $
$ $ $ $
Amount $ 175 $ 85 $ -
$ $ $ $
(20,700) $
NPV: $
3,623
d the rows to this sheet and copy formulas from similar rows for them to auto-populate. de the NPV calculation for (your stakeholders or someone from finance can tell you). Enter that number in the box a manually adjust the formula in cell H29. will be provided by your finance department.
ead the "Net Present Value" section in Chapter 10: Calculate ROI.
2 $ $ $ $ $ $ 3 $ $ $ 4 $ $ $ 5 $ $ $ Cal Year $ $ $ Cal Year $ $ $ Cal Year -
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $ Cal Year
$ $ $ $ Cal Year
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $ Cal Year
$ $ $ $ Cal Year
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $
2,500 3,200 20,700 Total 8,200 7,500 8,200 Total 38,912 25,000 63,912
$ $ $ $
$ $ $ $
Entries will auto-populate from the "Cost & Benefits" worksheet. If you added rows to the "Cost & Benefits" worksheet you must also add the rows to this sheet and Before you begin, determine the number of years that you need to provide the IRR calculation for ( sheet (E31). If you need more than ten years, you will need to manually adjust the formula in cell G3 The IRR will automatically calculate and display in cell G30. For more information in the HBR Guide to Building a Business Case, read the "Internal Rate of Re
Project Investment Capital Expenditures Diseo Desarrollo 0 Total Capital Costs Project Expense (Onetime Expense) Compra de dominio (5 aos) Compra de Servidor 0 Total Project Expense Total Project Investment Operating Costs (OpEx) Mantenimiento Rediseo 0 Total Operating Costs Project Benefits (amount & timing) Incremento de Ventas Disminucin de costos 0 Total Benefits
$ $ $ $ $ $ $ $ $
$ $ $
0 5,000 10,000 -
1 $ $ $ -
$ $ $ $
$ $ $ $
$ $ $ $ 0 $ $ $ $
$ $ $ $
Amount $ 175 $ 85 $ -
$ $ $ $
Annual Total $
(20,700) $
IRR:
# of years in IRR analysis: select a value between 2 and 10 5
40.3%
rows to this sheet and copy the formulas from similar rows for the new rows to autopopulate. he IRR calculation for (your stakeholders or someone from finance can tell you). Enter that number in the box at the b t the formula in cell G30.
2 $ $ $ $ $ $
3 $ $ $
4 $ $ $
5 $ $ $
Cal Year $ $ $
Cal Year $ $ $
Cal Year -
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $ Cal Year
$ $ $ $ Cal Year
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $ Cal Year
$ $ $ $ Cal Year
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $
2,500 3,200 20,700 Total 8,200 7,500 8,200 Total 38,912 25,000 63,912
$ $ $ $
$ $ $ $