n
Return
on Investment and Cost-Benefit
1.
Return on Investment (ROI) Analysis
2.
Financial Justification
3.
Cost Benefit Analysis
How
can you build a business case for mentoring? An important step is to
position mentoring as a business strategy by tying it to specific business
objectives. Next, is to ensure that success measurements and
key performance criteria are established that track progress and
outcomes.
We
can help you build the case for mentoring: Once
you provide us some basic information, we will prepare an analysis report you and others in the budget approval process can use in
evaluating the investment and building a financial business case.
1. Return on
Investment (ROI) analysis is one of several approaches to building a
financial business case. The term means that decision makers evaluate the
investment potential by comparing the magnitude and timing of expected
gains to the investment costs. Return on investment is frequently derived
as the "return" or
"incremental gain" from an action divided by the cost of that
action.
ROI
= [Gains (minus) Investment costs (divided by) Investment costs]
2. Financial
justification is a business case
analysis designed to answer questions like:
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Does the proposed
solution represent the best use of funds?
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Can we use the
proposed solution to improve our performance?
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Will the proposed
solution "pay for itself"?
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Financial justification, in
other words, is a business case analysis that helps decision makers decide
whether or not to go forward with a proposed action. It is distinguished from
other business case approaches only by the special emphasis on financial
decision criteria. Otherwise, a strong financial justification has the same
characteristics as other kinds of business cases—a clearly communicated cost
model and a good benefits rationale, for instance.
3. Cost benefit
analysis is used frequently in business planning and decision support. The
term itself has no precise definition beyond the implication that both
positive and negative impacts are going to be summarized and compared. Because
the term "cost benefit analysis" does not refer to any specific
approach or methodology, the business person who is asked to produce one
should take care to find out what is expected or needed. A cost benefit
analysis attempts to predict the financial impacts and other business
consequences of an action. This approach, when completed correctly, has
structural and procedural requirements for building a strong, successful
business case, including:
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Defining
"cost" and "benefit" in practical terms
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Determining which costs
and benefits are included for analysis
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Identifying which
financial metrics are important for decision makers and planners
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