Keywords
BEST PRACTICES;MEASURES;METRICS;ROIAbstract
When requirements increase faster than available resources, decisions on how to allocate the resources among various programs and projects are required. Project and program managers must show why their systems are worthy of continuing or launching over another. While many factors influence these important decisions, return on investment (ROI) should play a key role. ROI has been an essential factor for many years, however, lately we have seen many instances where the term is used incorrectly. For example, “The use of System X saved 23% of classroom hours,” is not ROI. Furthermore, traditional ROI requires a return or revenue stream to calculate the benefit of the investment. However, in military applications there is most likely not a revenue stream. How does one then calculate the return?
This tutorial builds on a study performed for the Modeling and Simulation Coordination Office in 2009 and published in the Acquisition Review Journal in 2011, completed by a team led by Bill Waite. In the tutorial, attendees will briefly be presented the definition of ROI, some examples of ROI and some examples of the incorrect use of ROI. Then some of the unique challenges to the DoD, and particularly the M&S environment, will be presented with the proposed solutions from the study discussed. In that discussion, how to construct solid usable metrics for use in the ROI calculation for M&S will be presented with real-world examples given. Additionally, an examination of how ROI can appear slightly different depending upon your point of view (management level) and what things are considered in the calculation. We will then consider a special use case for estimating ROI for new technology and introduce Expected Value ROI. Finally, examples that put all the ideas together and show ROI in some different scenarios will be presented and discussed. The end-goal is that each attendee will come away with an understanding of ROI and how it can be misapplied; how to calculate it and the unique challenges that arise when there is no revenue stream; how to overcome those challenges and develop measurable metrics for use in the ROI calculation; and finally, how all of the principles come together in some examples and how the appearance of ROI may differ depending upon your management level. Using these methods, attendees should walk away with being better able to defend their programs and projects against the ever-present funding axe.