ROI =(Return- Investment)/investment
The concept of Roi is essential for any Consultant as there is no easy way to convince your clients to
demonstrate gain, from engaging our services, that exceeds their costs.
On the one hand, contemplating ROI can be good for us, to protect against blind faith, just believing something "should" work, logically speaking. It makes sense to gauge results compared to resources spent, especially when we want to evaluate, say, different training delivery approaches, or different marketing activities for our own businesses.
But ROI is an very accounting term and it is easy to tweak this metric especially in Solution Selling because one can easily overestimate the intangible benefits out of solution but at the same time can completely ignore what are the investments in training is required to gain substantial benefits
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Benefit From Investment
But suppose you pursued a certain marketing activity for months, or years, and you monitored both inputs (resources) and results. Then, last year, you switched to another approach, and now you are comparing the results.
It turns out that Strategy A and Strategy B both require exactly the same amount of money, and of your time, to implement. And they produce exactly the same results, perhaps the same number of projects of the same size, say.
But the new strategy, B, is less enjoyable, complex in operations and more stressful. You don't put in any more time, but the time you do put in on Strategy B is not pleasant.
Wouldn't the smart thing be to go back to Strategy A? The ROI would be the same, but the BFI (Benefit From Investment) would be higher for A than for B.
PAYBACK PERIOD
The bank spends money and gets it all back with savings and, rarely, with identifiable new sources of revenue, such as fee income or discrete new, organic business. The shorter the time period for payback, the faster the approval. In tough times, six to nine months can be the hurdle. During better times, the horizon may stretch to 12 to 18 months. Simply put, management buys into a short term bump in spending that is quickly recovered in the near term with lower spending that leaves the bank ahead of the game for a long duration. Often used on smaller projects that have short implementation time periods, payback time is not a good fit for new, big projects or long lead time conversions to gain cost savings. There is no good business reason to exclude this alternative from the analytical tool set.
Payback Period= Net investment/ Annual Cash Flows
It is difficult to ignore one at the cost of other and each method finds its application in different projects and at different points of time during the projects.