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I have the following figures:

(x) Quote for new software feature: $10,000

(y) Employee Rate: $15.00/hour

(z) Hours per Day to perform task manually: 2

(n) Number of working days in a year: 251

(a) Hours per day to perform task after feature is developed: .5

I am trying to calculate the ROI in years. I calculate the financial value:

fv = (y * z * n) - (y * a * n)

fv = 7530 - 1882.5

I then calculate the ROI by doing:

roi = ((fv - x) / x) * 100

roi = ((5647.5 - 10,000) / 10,000) * 100

roi = -43.525

Two questions:

  1. Are my formulas correct?

  2. How do I figure out break even in years?

EDIT: I want to figure out how long it will take to recoup the investment ($10,000) from the perspective of labor saved. Does that help?

manumoomoo
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  • Are you supposed to assume that the future value of a dollar is always exactly one dollar? I suppose perhaps you must, because the problem statement does not specify a discount rate. – David K Apr 01 '16 at 17:30
  • Yes, for this I believe that is a correct assumption. – manumoomoo Apr 01 '16 at 17:35
  • I have doubts about the applicability of that ROI formula. If the feature requires a license that expires after one year, so that you have to pay another $10,000 if you want to use the feature for a second year, then the formula is correct. But assuming you do not have to pay for the feature every year, how would you compute ROI for the second year? I think you were probably supposed to use a formula more suited for capital investments, not one for goods that you sell. – David K Apr 01 '16 at 18:23
  • Okay, you are right the $10,000 is a one time fee to develop the feature. There may be some update fees, unknown and not relevant for this calculation, for years 2-x. – manumoomoo Apr 01 '16 at 19:13
  • It doesn't seem to be a problem in which you have to evaluate the ROI (you don't have any revenues at all). It seems to be a decision problem between the Buy or Make alternatives. And what is break even for you? Please rephrase you problem in order to have an appropriate answer. – alexjo Apr 02 '16 at 16:54

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