Determining ROI for your custom application

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One of the most critical considerations when embarking upon a new custom software development project is the return on investment (ROI) achieved from investing in the project. Quantifying the value for any project can be a complex task, but, at a high level, it comes down to three variables with a varying composition by case:
  • Reduced cost
    • Time savings through efficiency
    • Decreased direct costs
    • Increased quality
  • Increased revenue
    • New services / capabilities
    • Increased sales bookings
  • Project cost
    • Direct costs
    • Support and maintenance

ROI calculation

The basic calculation is (Reduced cost + Increased revenue) / Project cost = ROI. This helps us understand how quickly a project will pay for itself. Let’s consider a common scenario for custom application and calculate the ROI:

An engineering company provides a service to their clients which involves performing inspection and providing inspection reports to their client. They perform approximately 100 inspections per month. Each inspection takes approximately two hours to perform, but the creation of the report is a laborious process that requires the engineer to transpose handwritten notes into a Word document, insert photos from their digital camera, and submit the report to be peer-reviewed and formatted before it is delivered to the client. The writing and formatting process takes an additional four hours per report. Plus, due to the variety of client sites, each inspection may need to include some different criteria. That variability leads to the occasional human error that requires a reinspection to be performed. This occurs three times per month on average.

The engineering company receives a quote for an inspection tool that will allow them to enter their inspection data into a mobile device that has the correct inspection criteria loaded for each site, and allows them to insert photos directly. This tool will also automatically format each report, and provides a peer review system. The time estimated to perform all of the functions of the inspection and to generate the report is a total of four hours. The tool is estimated to cost $25,000.

With an hourly cost of $50 for engineers, the total cost to perform 100 inspections, and 3 reinspections each month is $30,900 ($50 hourly rate x 6 hours/inspection and report x 103 total inspections/month). However, the cost to perform those same inspections utilizing the new tool would be $20,000 ($50 hourly rate x 4 hours/inspection and report x 100 inspections/month). By reducing the process by two hours and eliminating the possibility for human error resulting in re-inspection, that equates to $130,800 in savings for a $25,000 investment, which is an ROI of 523% over the course of a year.

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