How to calculate the financial benefits of digitalisation?

Upon making investments, it is always advisable to calculate its profitability, i.e. payback term (ROI – Return of Investment). It is a common practice and everyone employs it. However, calculating the cost of not making the investment is far less common (RONI – return on not investing, risk of not investing).

This is something that needs to be paid extra attention to in the area of digitalisation

How can business benefits be calculated?

  • We shall define the issue
  • We shall determine the cost of the issue (calculation of RONI)
  • Determine the causes of the issue (root causes)
  • Preparation of a solution to mitigate causes
  • Determine the cost of investment (calculation of ROI)

The following is a real example regarding the calculation of RONI and ROI.

The enterprise has problems with quality assurance. The annual cost of non-compliance is over 1.5% of the sales turnover, divided as follows:

  • Cost of eliminating non-compliances is over 1%;
  • Cost of utilising defective products is over 0.5%{

The annual cost of non-compliance is over 1.5% of the sales turnover, divided as follows:

  • Cost of eliminating non-compliances is up to 0.9%;
  • Cost of utilising defective products is up to 0.25%{

RONI can be depicted on a chart

If an enterprise launches a systematic quality improvement programme and invests 50,000 euros, the profitability of the investment is as follows

By viewing ROI and RONI together, we can see that it would be more profitable to make the investment than to suffer continuous loss

 

 

Do you wish to launch your i-Enterprise programme?

The best way is to fill out the i-Enterprise self-evaluation questionnaire, which provides an overview of the current situation of the enterprise as well as advice on how to proceed.