ROI 101 - Apply it in your business and personal life.
It’s common practice in the construction and distribution industries to measure the return on investment (ROI) for equipment, IT spending, tools, and any large project. A new Time & Expense software system, for example, will go through a plus-and-minus checklist before the purchase is made, and this examination should continue throughout the life of the software system in the organization. When it becomes too expensive to maintain, it is replaced.
Can’t we use this same principle in our personal lives, evaluating every investment we make in time, money, relationships, and work? Why shouldn’t we consistently examine the useful life of our habits, associations, and choices?
When someone asks “What’s the ROI?”, what they really want to know is:
- Business: Is this project worth the money we will spend?
- Personal: Is this investment of my time worth the effort?
- Business: Are the returns greater than the costs?
- Personal: Will the final results outweigh the difficulty it takes to get there?
People want to know the value of an investment before they decide to spend time and money. They need to know the return will offset the pain it takes along the way.
Typically there are three ways a business measures ROI Value:
The most common metrics are:
1. Net Present Value (NPV)
2. Internal Rate of Return (IRR)
3. Payback Period (PP)
Translated into a language everyone understands:
- NPV:
Business: How much is this project worth in today’s money?
Personal: What is the value of this change if I make it today?
- IRR:
Business: If the financial benefits are produced as an interest rate, what is the rate?
Personal: Does the personal benefit enforce one of my core values?
- PP:
Business: How quickly does this project pay for itself?
Personal: How long will it take for me to forget the pain of getting here?
So we all know what ROI is. The challenge is to apply it across your life - both personally and professionally - and live decisively.
