Case Study ”Develop ROI
Working with Edwina you analyze the expected volumes , fees, and charges. These figures are based on Big Bucks clients only.
Expected number of Premium clients (per year):
200 (best case), 120 (likely case), 100 (worst case)
Additional fee per premium client: $1,000
Number of revisits caused by poor client preference information (per year):
20 (best case), 18 (likely case), 12 (worst case)
Cost per revisit (to Smuthe): $200
Number of Big Bucks clients who seek other services:
30 (best case), 15 (likely case), 10 (worst case)
Fee normal client: $1,000
25 (best case), 10 (likely case), 5 (worst case)
Remember that the outputs all lead to the same outcome so as long as we calculate the outcome benefits stream, we can add the output benefits as a bonus.
| Objective || Output || Outcome |
| To capture extended client personal details || More information about the client's family, life-style, and accommodation preference for Smuthe consultants || More appropriate placement for clients |
| Improve service (to Smuthe clients and Smuthe consultants) || Increased revenue (increase in fees for premium service) |
| Avoid costs (less research required for consultants, fewer accommodation showings) || |
Best case $100,000 p.a.
Likely case $60,000 p.a.
Best case $4,000 p.a.
Likely case $4,000 p.a.
Worst case $4,000 p.a.
Worst case $50,000 p.a.
Notional avoided cost (reduced level of potential clients loss)
Best case $25,000 p.a.
Likely case $10,000 p.a.
Worst case $5,000 p.a.
Edwina is "on a winner" here.
Based on the likely case estimates of 234 hours (which include Joan Jette's effort), plus 10% for project management and 10% for internal quality assurance (don't forget the $1,600 for external quality assurance), you derive a cost estimate of 300 hours (rounded) at $100 per hour .
Support (for 3 years ): $30,000
You calculate the ROI using just the likely case costs (you are pretty confident) and over three years. Just for illustration, we'll use the likely case benefits estimates. Of course, you'd derive a complete set of ROI calculations based on best case benefits, best case costs, best case benefits, likely costs, and so on.
The discount rate you agree on with Edwina is 8% and you assume no yearly increase in clients' usage.
| || Year 0 || Year 1 || Year 2 || Year 3 |
| Returns (F.V.) || || $74,000 || $74,000 || $74,000 |
| Returns (P.V.) || || $68,517 || $63,440 || $58,741 |
| Costs (F.V.) || $30,000 || $10,000 || $10,000 || $10,000 |
| Costs (P.V.) || $30,000 || $9,259 || $8,573 || $7,938 |
| FV = future value; PV = present value. |
This gives you the following ROI
Clearly, this is a viable project for Edwina (remembering that it scored high on the added value drivers as well). In addition, there is the expected growth into Watchout Insurance at a later stage.