Economic Feasibility ROI Oracle Tips by Burleson Consulting

The Data Warehouse Development Life Cycle

The Feasibility Study

Economic Feasibility

COMPUTING RETURN ON INVESTMENT (ROI)

Return on investment is the financial method most commonly used by organizations to determine which projects should be undertaken. In simple terms, ROI is the payback period for a project. For a data warehouse project, ROI analysis begins by looking at the business areas that will be changed by the implementation of the warehouse.

ROI is only one of several methods that a company might use to make an investment decision about a project. Other techniques, such as the Net Present Value method, the Internal Rate of Return method, and the Payback period method, may also be utilized for the calculations.

ROI is not restricted to data warehouse investment decisions. Often ROI is used to make financial decisions such as deciding whether to acquire new property, choosing to downsize operations, and determining whether to lease or to buy assets.

To illustrate ROI, let’s look at a simple example. Assume that you are an antique dealer, and you see a Maxfield Parrish print at a yard sale for $20. You purchase the print and immediately run home to look up the book value of the print. You see that this print has a full retail value of $250, and you are delighted with your investment. Now, however, you are immediately faced with another decision. You can price your print at full retail of $250 dollars, knowing that it will probably take a year to sell the print, or you could price the print at $200 and sell it immediately.

The ROI on an immediate sale for $200 can be quickly computed using the following formula:

ROI = Present Value Of Benefits / Present Value Of Costs

Using the formula, you can determine that an immediate sale would yield an ROI of ($200/20) or a 200 percent return on your $20 investment. Not too shabby, but what about waiting a while to see if you get $250 for the print?

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This is an excerpt from "High Performance Data Warehousing", copyright 1997.

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