Methodology
How the ROI calculator computes results
This page documents definitions and formulas so finance teams can audit the model. If a value is not a fact from your data, treat it as an assumption and document a rationale.
For the step-by-step method, see the ROI framework. For the full bibliography, see sources.
Value drivers (benefits)
Labor efficiency savings
Formula: hours saved per year multiplied by a fully loaded hourly rate. If you model productivity improvement as a percent lift across a team, the calculator also includes a separate realization percent so you can reflect that not all time saved becomes hard-dollar savings.
Close acceleration savings
Formula: hours saved per close multiplied by closes per year multiplied by a fully loaded hourly rate. Benchmarking can help validate cycle time framing and definitions.[1]
AP invoice processing savings
Formula: minutes saved per invoice multiplied by invoices per year, divided by 60, multiplied by an hourly rate.[2]
Headcount avoidance
Formula: avoided hires multiplied by fully loaded cost per employee. This is only appropriate when the organization would otherwise hire and the capacity is real.
Cash flow acceleration from DSO improvement
Formula: cash unlocked equals (annual revenue divided by days in year) multiplied by DSO days improved. DSO definitions and cash flow framing are described in working capital guidance.[3]
Day count option: by default this model uses 365 calendar days for accounting consistency. If your company uses a working-day convention, you can set the day basis to 260. This changes the implied daily revenue and the cash unlocked estimate. Document which approach you used and why.
Vendor spend savings
Formula: annual vendor spend multiplied by a spend improvement percent.
Legacy systems retired
Formula: legacy software plus server or infrastructure costs plus IT support reductions, minus the new system recurring cost. This represents annual net savings from consolidating systems.
Risk reduction
Risk reduction is tracked as a qualitative score by default. If you choose to convert risk to dollars, use a conservative expected loss avoided proxy, keep the proxy explicit, and document the rationale.
ROI vs payback vs NPV
Simple ROI
Simple ROI compares total annual benefits to total annual costs. It is useful as a quick screen but can hide timing differences and one-time implementation costs.
Payback
Payback estimates how long it takes for annual net value to recover the one-time implementation cost. It is easy to explain but ignores value after payback.
Important: recurring costs are modeled annually within the value drivers (as part of system consolidation net savings). The one-time implementation cost is modeled separately so payback reflects upfront investment.
NPV (optional advanced mode)
NPV discounts future cash flows using a discount rate. This model uses WACC as the default discount rate concept because it is a common proxy for cost of capital.[4]
Guardrail: pick a discount rate that matches your company and project risk profile. If you are unsure, treat the discount rate as an assumption and validate it with finance leadership.[5]
In this calculator, 3-year NPV discounts three years of annual net value and then subtracts the one-time implementation cost.
Included and excluded
Included: measurable labor savings, cycle time reduction that produces real capacity, headcount avoidance when justified, vendor spend reductions, legacy system retirement savings, and working capital cash acceleration.
Excluded by default: revenue uplift, strategic value narratives, and highly speculative benefits. If you add them, document evidence and treat them as assumptions.
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
APQC: Cycle time to perform monthly close
Benchmark definitions and cycle-time framing for the close process. Specific benchmark values vary by dataset and may be gated.
Accessed 2025-12-12
IOFM: Determining the cost to process an invoice
Methodology guidance for calculating invoice processing cost and what to include. Some details may require a subscription.
Accessed 2025-12-12
JPMorgan: DSO and DPO: how they can improve your cash flow
Definitions and practical framing for receivables and payables cycle metrics and cash flow impact.
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
Aswath Damodaran, NYU Stern: Cost of Capital by Country (short, PDF)
Reference material for thinking about cost of capital inputs. Use a WACC that matches your company risk profile.
Accessed 2025-12-12