4 steps to calculating ROI in Software Development

August 2014

Why bother with Software Development ROI?

It enables the real success of the project to be fairly judged

Helps justify future development projects

It enables Finance to ensure the organisation gets value for money

How to measure a ROI for your software project

In this document we will take you through four steps that we believe both IT and Finance Directors can follow to guarantee an accurate assessment of the value of a software project; aiding the decision-making process, regarding whether or not to invest.

Step 1: Interrogate the project

Understanding ROI means understanding the nature of the project.

What ‘type’ of project is it?

Cost saving investments?Revenue growth investments?

The answer to this won’t impact the information gathering but, it will make a difference in terms of assessment period

Step 2: Agree on a timeframe

Real ROI can only be truly understood if it’s measured at key points over time until the project ends

Cost saving investments tend to have a set timeframe

Revenue growth investments tend to be projected over the longer term

Either way agree the timeframe and set regular milestones to track real ROI

Step 3: Decide how to measure costs

The biggest area of consideration for ROI on software development is cost

Consider the different measurements that are used for assessing both cost saving and revenue growth investments. These include:

Total cost of ownership (TCO)Cost saving investmentsRevenue growth investmentsAdded value from unlikely sources (e.g.

R&D Tax Credits)

Step 4: Choose the right supplier

Do you undertake the project in-house or engage a software development company?

If you do put out a tender for the project ensure:

The supplier understands your ROI measurement criteria and can deliver against themThat Finance & IT are fully aligned on

goals before you go out to tender

This alignment will more likely result in a successful and long-term software development project

Find out more about Software Development Services from MSM

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