Instead of Prioritize the present when planning your product. Neglecting the future is almost as bad as over-emphasizing it. The key is to incorporate your plans for the future correctly by making them play second fiddle to the present needs of your market. Serve both today and tomorrow – but […]
5 Return On Investment Calculation Tips
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.
The following ROI calculation tips are detailed in this article:
1. Recognize the Risks
2. Discount Future Cash Flows
3. Separate Sales From Expenses
4. Overcome Ozymandias Syndrome
5. Ignore Infinite Elvises
Read on for the details…
Prioritization With ROI and Utility
Prioritization with ROI is generally thought of as a quantitative analysis. For hard ROI, that is true. For soft ROI, it is anything but true. You have to make a prediction of the utility of the requirement or feature. That predicted utility is based on our expected utility, which is based on your past experiences. Your past experiences are reflected in remembered utility, which is a function of experienced utility. How can you know with certainty, and use that to prioritize requirements or features?
Don’t Prevent My Success
Finding the right balance when defining requirements can be hard. On one side, we want to avoid an inadequate system – “Don’t prevent my success by excluding features I might want”. On the other side, we want to avoid cost-overruns, delayed schedules, and negative-ROI features. This can be a hard line to walk.
Definition of NPV – Net Present Value
Net present value, or NPV is the great equalizer of financial analysis.
NPV allows us to compare any two investments and determine which is the better investment.
NPV tells us how many dollars, today, we would be willing to spend to receive money in the future. NPV lets us compare investments that pay back money in very different ways – we can decide if we would rather have $10,000 in one year, or $500 per month for 20 months. Without NPV, the two investments appear to be the same (they both return $10,000), but one of them is better than the other.
Definition of ROI – Return on Investment
We talk about ROI all the time – what is it, in layman’s terms? ROI is the acronym for return on investment. Another way to think of it is “How much profit will we make if we invest in this project?” Profit is revenue minus costs. Technically, the question should […]