Return on Investment is a criterion designed to measure performance. In other words, it analyses the effectiveness of an investment measure in comparison to other similar ventures or related investments. It is able to measure the profit margin of business that went into the investment. This paper will deal with key ROI measures, particular costs that need attention and capturing, and factors that need no attention or recording. In addition, it will look into the challenges that the entire process of ROI may face during the entire procedure and the manner in which a consultant can help more insight in coming up with strategies and competencies within an organization.
Key ROI measures
The success of a business project keys factors that might affect performance what he or she considers success or failure. Defining success is vital for the company and all its stakeholders. After outlining what is the success and what is failure decision-making becomes easier (Farris, 2017).
After outlining failure and success, one gets the key performance issues clearly placed. Secondly, developing suitable metrics is challenging during the early stages of an investment. Consequently, one needs to develop realistic and quantitative objectives based on information from what one considers failure and success as stated earlier. Whether the success goals were too ambitious or too traditional, an organization can always adjust accordingly (Halsall, & Dunn, 2013).
Gathering appropriate information from reliable sources is helpful in developing a clear guideline in mapping out returns of the organization. Gathering data frequently leads to easier monitoring of goals and objectives of an investment. One should be more concerned with the daily performance of the business rather than wait for the actual ROI conducted monthly or even annually. Lastly, one needs to use the information to make decisions (Phillips, & Phillips, 2008).
What needs capturing in an ROI?
ROI is not just a calculation of figures but it dictates the manner in which a person thinks and executes their duties. Therefore, calculation of ROI should not necessarily be after a year or even annually. Some expenses occur as part of running the business activities while others occur even if the business does not carry out any activities. One has to keep the record of all the activities and the amount of money they incur on the business. Eventually, the accurate cost will reveal through the records (Phillips, & Phillips, 2008).
What one does not need to capture in an ROI
A common mistake people make while carrying out ROI is comparing returns with initial money pumped into the scheme. The initial capital is often in terms of cash. The right approach is to measure the amount of money or cash flow passing through the investment over a certain time against profits. Once one determines the cash flow and differentiates it from the profit, ROI evaluation becomes simpler (Farris, 2017).
Challenges during ROI evaluation
After outcome, the ROI has to be accurate and not a single digit should be out of place. Hence, it financial expert should carry out the procedure and interpret all the results to other stakeholders. The results should match the actual financial numbers on the line. Otherwise, the understatement may disrupt any strategies developed from the results. A consultant can develop competency by ensuring that workers have enough expertise and incorporate recruitment regularly (Halsall, & Dunn, 2013).
References
Farris, P. W. (2017). Key marketing metrics: The 50+ metrics every manager needs to know. Harlow: Pearson Education Limited.
Halsall, C., & Dunn, M. (2013). The marketing accountability imperative: Driving superior returns on marketing investments. San Francisco, Calif: Jossey-Bass.
Phillips, P. P., & Phillips, J. J. (2008). ROI Fundamentals. John Wiley & Sons.
