Return on Investment

Return on investment [ROI] is a calculation used as part of investment appraisal and in business cases in order to validate the likely outcomes of proposed investments and compare them with required or desired ROIs. Typically, financial techniques such as net present value or payback period are also used to assess the merits of proposed future investments, as they are more accurate assessments of expected returns for long-term investments compared with accounting ROI calculations.The role of procurement in business cases and evaluation of ROIs is to ensure that the processes used to estimate expenditure are robust and to validate that proposed expenditures take into account all likely costs. In considering the likely benefits of the project, it is important to review the extent to which risks associated with the procurement process and supplier performance have been fully identified and managed, and to ensure that the benefit realisation program is realistic. The proposed contractual arrangements with suppliers should ensure that the risks associated with the investment are managed appropriately. See also Discounted Cash Flow, Investment Appraisal and Net Present Value