IT Investment Books, CDs, & Software
FAST ROI for IT Calculator – “Quick”
Version (Excel Add-on)
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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