FAQ
Questions about ROI modeling
These answers are written to be product-agnostic. When a topic depends on a benchmark or definition, we link to external sources.
FAQ
Want a step-by-step sequence for building a business case? Read the ROI framework.
How do you calculate ROI for a technology project?
Direct answer: Model measurable benefits as value drivers, subtract costs, then compare net benefits to investment over a defined period.
How to validate: Validate the biggest drivers with process owners and data such as time studies, system logs, and finance reports.
Common pitfalls: Double counting benefits, mixing one-time and recurring costs, and assuming immediate full adoption.
What is the difference between ROI, payback, and NPV?
Direct answer: ROI is a ratio, payback is time to recover the initial investment, and NPV discounts future cash flows to today.
How to validate: Use NPV when timing differs across projects and when a discount rate is available (often proxied by WACC).
Common pitfalls: Comparing ROI across different time horizons without normalizing assumptions.
Is this ROI calculator product-agnostic?
Direct answer: Yes. The model is driven by outcomes like hours saved, cycle-time reduction, and working capital changes, not vendor features.
How to validate: Tie each driver to a process metric that exists regardless of platform.
Common pitfalls: Smuggling in vendor-specific guarantees as if they are universal outcomes.
What should I do when I do not know an input?
Direct answer: Treat it as an assumption and write down the rationale and validation plan.
How to validate: Decide what data will confirm it, who owns that data, and when you will revisit the model.
Common pitfalls: Leaving assumptions unlabeled or never revisiting them after initial estimates.
What counts as a “conservative” assumption?
Direct answer: Conservative means easier to defend and less likely to overstate benefits or understate costs.
How to validate: Use internal baselines and document why the assumption is realistic for your operating model.
Common pitfalls: Calling an aggressive benchmark “conservative” without evidence.
How should I model labor savings?
Direct answer: Convert time saved into cost impact based on whether you expect headcount reduction, headcount avoidance, or capacity reallocation.
How to validate: Have department leaders confirm what will actually happen with freed capacity.
Common pitfalls: Counting time saved as cash savings without a realistic mechanism.
How do you estimate hours saved credibly?
Direct answer: Use a baseline, define the task, measure current effort, then estimate the new effort and adoption.
How to validate: Use time studies, ticket volumes, workflow logs, and sample observations.
Common pitfalls: Anecdotal estimates without a baseline or adoption ramp.
How do you model working capital benefits (DSO)?
Direct answer: Translate a reduction in DSO into a cash release using average daily sales, then treat it as a one-time cash flow impact.
How to validate: Confirm DSO definition, day-count basis (365 vs 260), and collection feasibility with finance leadership.
Common pitfalls: Treating a cash release as recurring annual savings.
Should I use 365 days or 260 working days for DSO?
Direct answer: Use the basis your finance team uses consistently for AR metrics and planning.
How to validate: Align with internal reporting, then document the choice and implications.
Common pitfalls: Switching bases to make results look better.
How do you handle one-time versus recurring costs?
Direct answer: Separate implementation costs (one-time) from run costs (recurring) and model timing by year.
How to validate: Ask internal IT and process owners to confirm what is truly one-time versus ongoing.
Common pitfalls: Burying recurring costs inside implementation or ignoring internal labor.
What costs should I include in a technology ROI model?
Direct answer: Include implementation, licenses or subscriptions, internal labor, change management, training, and ongoing support.
How to validate: Compare the cost list to your procurement, IT, and finance budgeting categories.
Common pitfalls: Ignoring internal time or downstream support costs.
What discount rate should I use for NPV?
Direct answer: Use a rate aligned with your cost of capital or hurdle rate for comparable investments.
How to validate: Confirm WACC or hurdle rate with finance and document the rationale.
Common pitfalls: Choosing a rate purely to improve NPV.
How should I interpret NPV when benefits are uncertain?
Direct answer: Treat NPV as scenario-dependent and report downside, base, and upside cases.
How to validate: Stress test key inputs such as adoption, productivity realization, and timing.
Common pitfalls: Presenting a single NPV number as certain.
What is productivity realization and why does it matter?
Direct answer: It is the percentage of modeled productivity gains you expect to actually capture in practice due to adoption and constraints.
How to validate: Calibrate using past change initiatives and process owner sign-off.
Common pitfalls: Assuming 100% realization without adoption evidence.
How do you avoid double counting benefits?
Direct answer: Each dollar of benefit should be tied to one mechanism and one owner.
How to validate: Review drivers with finance and process owners to ensure benefits do not overlap.
Common pitfalls: Counting both “hours saved” and “headcount reduced” for the same work.
Is ROI the only decision metric I should use?
Direct answer: No. Also consider strategic fit, risk reduction, compliance, and operational resilience.
How to validate: Write qualitative decision criteria alongside quantitative outputs.
Common pitfalls: Approving or rejecting projects solely on ROI when risk or compliance is the real driver.
Does the calculator provide tax, legal, or investment advice?
Direct answer: No. This site is for educational use and planning.
How to validate: Validate assumptions and decisions with your finance, legal, and governance teams.
Common pitfalls: Treating output as a guarantee or a signed-off valuation.
How should I use share links safely?
Direct answer: Use share links to collaborate on assumptions, not as published, indexable pages.
How to validate: Confirm sensitive data is not embedded before sharing broadly.
Common pitfalls: Sharing links that encode confidential information or treating them as canonical documents.
Written and reviewed by Randy Kardas, CPA, CITP, CGMA, MBA
Randy is an accounting and finance professional focused on technology ROI modeling, business case development, and practical analysis that finance teams can validate.
Sources used on this page
Forrester: Total Economic Impact (TEI) methodology
A widely used approach for structuring benefits, costs, flexibility, and risk in technology business cases.
Accessed 2025-12-12
McKinsey: Fostering better decisions through holistic ROI estimates
Discussion of connecting value drivers to decision making and using NPV-style thinking for investment tradeoffs.
Accessed 2025-12-12
Aswath Damodaran, NYU Stern: WACC central
Overview and related references for WACC and cost of capital estimation.
Accessed 2025-12-12