What is Return on Investment (ROI)? What is the importance of Return on Investment?  - MBA Notes

Answer:
Return on Investment (ROI) is the calculated benefit that an organisation is projected to receive in return for investing money, time and resources in a project.

ROI is importance as it is used to access the value it adds to the business or organisation as a result of the project implemented. It is a measure of if the project added any value.

ROI information is used to assess the status of the business viability of the project at key checkpoints throughout the project’s life-cycle. ROI may include the benefits associated with improved mission performance, reduced cost, increased quality, speed, or flexibility, and increased customer and employee satisfaction.

ROI should reflect such risk factors as the project’s technical complexity, the agency’s management capacity, the likelihood of cost overruns, and the consequences of under or non-performance. Where appropriate, ROI should reflect actual returns observed through pilot projects and prototypes.

ROI should be quantified in terms of money and should include a calculation of the break-even point (BEP), which is the time (point in time)  when the investment begins to generate a positive return. ROI should be re-calculated at every major checkpoint of a project to see if the BEP is still on schedule, based on project spending and accomplishments to date.

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