Here's how you can assess the ROI of a company's tech project.

To assess the ROI of a tech project, start by defining ROI as the ratio of net gains to total costs. Identify all costs, including initial investment, operational expenses, and maintenance. Calculate gains by evaluating increased revenue, cost savings, and efficiency improvements. Analyze the project’s impact on productivity, CX, and market competitiveness. Adjust for risk by considering potential pitfalls and incorporating risk management strategies. Proactively monitor progress against benchmarks to ensure alignment with projected goals and timelines. Capture and summarize the journey, meticulously compare the state of affairs before and after the tech project’s adoption. Highlight key metrics and qualitative improvements.

ROI, being a quantitative metric often helps to measure the return of a project based investment but also in acquisitions or minority stake investments in other companies. The metric is not sound proof as it does not account for the time value of its investment, and therefore not how fast the return is realized and is generally more valued in retrograde (liquidity events, closing the books etc.) - so when the return is actually realized and is therefore more of an estimate rather than forecast when presented prior to it materializing.

In addition, it's vital to factor in opportunity costs, which represent the benefits you forego from not investing resources elsewhere (or the best alternative to this given investment). Another concept to consider is sunk costs, which are past expenses that cannot be recovered and should not influence ongoing investment decisions. Finally, don't overlook hidden costs, such as potential productivity losses during the learning curve or costs related to integrating new technology with legacy systems. By considering these aspects, you gain a comprehensive understanding of the total investment required.

Before you start, you should have some rough idea of costs. Why? You don't want to move forward if the costs are crazy high.

One key metric is the Internal Rate of Return (IRR), which calculates the rate of return at which the net present value of all project cash flows (both inflows and outflows) equals zero. Another important measure is the Payback Period, which indicates the time it takes for an investment to generate an amount of cash flow sufficient to recover the initial investment. Lastly, Net Present Value (NPV) evaluates the difference between the present value of cash inflows and the present value of cash outflows over a period, helping to assess the profitability of the project.

Therefore ROI is not in all cases absolute or concrete, it is a measure that could account for only the visible change in for example ARR - however a clear lag in its effect needs to be accounted for. E.g. when does the effects of implementing a new project/ daughter company’s service actually kick in and yield returns? In addition; to what extent does the enabling factor of this investment yield efficiencies or certain economies of scale or scope? These efficiencies and synergies are not always accounted as a return or a multiplier of concrete return metrics. Therefore ROI might not always account for all the qualitative added value an investment brings.