When a business finishes a project, they want to know how successful it was in generating revenue. One way to determine a project's success is to perform a return on investment analysis. A return on investment (ROI) analysis shows how much revenue a project generated, compared to how much the project cost. Companies want to have a higher ROI on projects, because then the project generated more revenue relative to its cost to implement.
Determine the cost of the project and the revenues from the project for the period management wishes to analyze. For example, a firm wants to start a new widget plant. The cost of the plant is $100,000. After 2 years, the firm estimates the project generated $150,000 in revenues.
Subtract the cost of the project from the gain from the project. In our example, $150,000 minus $100,000 equals $50,000.
Divide the number calculated in Step 2 by the cost of the project to determine ROI. In our example, $50,000 divided by $100,000 equals a ROI of 0.5.
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