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FAST ROI for IT Calculator – “Quick” Version (Excel Add-on)

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What is FAST ROI?

FAST ROI is a software tool that enables IT and business professionals to generate three of the most common financial metrics in under 90 seconds. This simple, one-screen software program, enables anyone to perform calculations that challenge even the experts.

Do I need to know anything about economics of finance?

No. FAST ROI is designed for use by those of us with little or no finance or economics training. Although anyone can use FAST ROI, even experts find this tool easier to use than setting up their own spreadsheets to do the calculations.

Do I need any other software to run FAST ROI?

All you need to have is Microsoft Excel 97 or 2000 installed and operating in your PC.

What are the benefits of FAST ROI?

The two main benefits are knowledge (information you may never have had before) and time (you need less than two minutes to get the results):

  • Know the value of a project from three different perspectives: time (Payback), value (NPV), and rate (IRR).
  • Know the value in 90 seconds.
  • See your project’s value through the eyes of the financial decision-makers.
  • Be able to compare projects, solutions, different interest rates, analysis periods, and much more.

What data do I need?

The data requirements are straightforward:

  • the cost of a project
  • the financial benefits (reduced costs or increased revenues) of the project for at least one year

What can I use it for?

Evaluating anything that costs money and for which you expect a financial return. The main use is to quickly generate three common financial metrics for a project: Payback, NPV, and IRR. Once you become comfortable with using financial indicators to evaluate projects, you’ll think of dozens of additional uses:

  • Validate vendor "ROI" claims
  • "Run the numbers" for a series of projects to add another dimension to decisions
  • Do "what if" analyses by varying time or rate assumptions

Here’s another example in terms that you might be familiar with. "Suppose I buy a house this year for $250,000 and sell it in three years for $350,000. My mortgage rate is 6%. How much is this ‘investment" worth?"

As the financial metrics show: the value of your home investment is $43,867 (Remember, you have mortgage interest costs, time has passed, and you have to subtract the original "Year 0" investment.). Also, the rate of your investment’s return is 11.87%.

Maybe you decide that 11.87% is too low. You wonder how much you would need to ask for to get a 20% return. To get the answer, all you do is keep increasing the amount in "Year 3" until IRR reads 20% (you don’t have to reenter the other numbers). You find that you would have to sell the house for $432,000 in three years to get a 20% return on your investment. As you can see, the value of your investment has grown to $112,716 at this rate. (Note: FAST ROI will tell you to hit the "recalculate" button to clear the previous IRR calculation.)

Can I compare two (or more) projects?

Yes. If you are using the same analysis period and discount rate, simply enter the new project cost and benefit numbers. If the periods or rates are different, just make the simple changes and start anew. You might find it helpful to print (or use the "export" function) the results of each for your records.

How many years does FAST ROI analyze?

In the interest of simplicity, we decided to limit this version of FAST ROI to one-year projects ("Year 0") with an analysis (i.e., benefit) period up to 10 years. Could we have made the project and analysis periods longer? Yes. But that facts are:

  • You would have a lot more data entry
  • Today, the trend is for shorter project periods with tangible deliverables
  • Even larger projects are focusing on a modular approach with tangible deliverables at the end of each stage
  • The overwhelming majority of projects aren’t the big multi-year variety
  • Multi-year projects with benefits expected to span decades should have financial experts assigned as part of a multi-disciplinary analysis team that would develop a customized analysis for the project
  • There are very expensive (tens to hundreds of thousands of dollars) products available to do this
  • Our aim is to deliver a simple, easy to use, and inexpensive tool that anyone can use

I don’t know the "discount rate", where do I get it?

Ordinarily, the discount rate is provided by an organization’s finance or budget department. If you have no instructions about what to use, consider a current interest rate from a major financial institution (e.g., the Federal Reserve Board; for US government agencies, it would be the Office of Management and Budget).

How do I know that these calculations are acceptable for my organization?

Always check with your Finance or Budget organization. Show them FAST ROI and ask if the calculations are acceptable.

How accurate are the numbers?

Remember, your project and benefit numbers that you enter represent your best estimates of what will happen in the future. FAST ROI uses these numbers to help calculate the financial performance metrics. The financial metrics are reasonable estimate of future performance results.

Why do I sometimes get "Questionable" for my IRR numbers?

The term "Questionable" appears under two conditions:

  • the return is so large that it is "suspect" and should be subjected to additional analysis beyond FAST ROI’s design parameters (e.g., IT projects, similar to vendor claims, sometimes assert extraordinarily high rates of return - say 10,000%)
  • the return is negative – in which case, there is no rate of return at all

Who is RMS?

RMS (Resource Management Systems, Inc.) is a specialist in Information Technology (IT) investment decision-making. Since 1985, RMS has been helping organizations make more informed investment selection decisions and improve the management of performance to ensure improved performance and results.

RMS delivers real-world training (e.g., IT cost-benefit analysis), products (e.g., FAST ROI), and consulting services to Fortune 1000 corporations and some of the largest government organizations.

 

 

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