Lean Six Sigma Forum
ROI
The ROI quiz question says: "if a project yields monthly savings of $4,000 beginning 4 months after implementation with an initial investment of $42,000 and training costs of $2,000, what is the 5 year ROI from implementation?"
I said "5.09" but this answer was deemed "incorrect." The only other answer that somewhat makes sense to me here is "5.45." However, this doesn't factor in the 4 initial months with zero monthly savings. Is this an error on your quiz? Otherwise please explain how "4.09" or "4.45" could be correct....
Good question Melissa,
This one does create some angst among users but hopefully this explanation will make sense.
ROI = Total "Net" Benefits / Total Costs
Therefore, with $4,000 per month in benefit over 56 of the 60 months (because benefits started 4 months after implementation) the Total benefit is $4,000 x 56 or $224,000. However, we have to net out the implementation costs and the training costs so $224,000 - $42,000 - $2,000 = $180,000. The Total Net Benefit is $180,000. This should now be divided by $44,000 (Total costs) getting us to the correct answer of 4.09.