Determining the Return on Your IT Investment
As time passes, your business will need to be able to grow and develop its use of technology through thoughtful investments and improvements. To do so, it helps to calculate the returns you can anticipate seeing from these investments. For this week’s tip, we’ll go over how to do so.
How Your IT Investments Can Benefit You
There are a few ways that the money you put into your technology can pay for itself.
- Increased Revenue – If your investment results in the ability to offer something new to your business’ clients, you’ve opened yourself up to increased cash flow through a new revenue stream.
- Cost Reduction – Some present investments will help you shave back your costs in the future. For instance, upgrading your technology can help reduce your maintenance needs, reducing your costs in that regard.
- Capital Reduction – You also have the option of reducing your capital expenses related to technology. Finding more cost-efficient options for your IT needs will allow you to do this.
- Cost Avoidance – Of course, if you have the option to eliminate a cost entirely, why wouldn’t you? Eliminating bottlenecks, downtime, and other financial drains through improved technology solutions are an effective way of doing so.
- Capital Avoidance – It’s hard to get more efficient than eliminating one of your costs entirely. Any investment that you make that allows you to sidestep other costs falls under this category.
You also need to have a comprehensive appreciation for the basics of how your network is constructed, as well as why you are making an investment in the first place. Once you do, you will be better equipped to calculate your returns.
The equation to calculate the return on investment for your technology is the same as it would be for any investment:
ROI = (Benefit)/Cost
That’s it. You take your total benefit (calculated by subtracting your costs from your ultimate gains) and divide it by your total costs. This gives you a simple metric that makes your benefits easy to understand, and thereby enables you to make comparisons much more easily.
You should also keep a few other qualifications in mind as you plan your next IT investments.
- Who in your organization will be affected by the new investment and the changes that result from it? How will these changes impact them?
- Are you focused more on seeing an ROI that’s financially quantifiable, or is the value in your investment more accurately described in less tangible, qualifiable terms?
- What – if anything – could potentially go wrong during the implementation of your IT improvements?
Macatawa Technologies can help you decide what your best moves are concerning your information technology. Reach out to us at 616-394-4940 to learn more.