A look back at the best from this week in the past.
We must allow for risk when calculating ROI
If we fail to take risk into account, our calculations will certainly be wrong, and we may make a poor decision. When we talk about accounting for risk in this context, we mean that we are accounting for the unlikely, undesired, or unintentional outcomes. We use the term expected value to refer to the risk adjusted approximation of the outcome. In financial circles, this is also called discounting.
The most common mistake people make when calculating ROI is failing to take into account the expected value of the return or the expected value of the cost of a project.
Utility is an abstract concept usually relegated to economics. What is it? How does it work?
Prioritization with ROI is generally thought of as a quantitative analysis. For hard and soft ROI, that is true. But benefits can not always be quantified. Economists get around this with the notion of utility. You have to make a prediction of the utility of the requirement or feature. How do you do that?
Return on investment calculation is critical to using ROI for prioritizing requirements. We’ve discussed how to forecast return on investment by estimating costs and predicting benefits. Here are five tips to help you when calculating return on investment.