Return on Investment (ROI) is a measure of the gain (preferably) or loss generated relative to the amount of money that was invested. ROI is typically expressed as a percentage and is generally used for personal financial decisions, examining the profitability of a company, or comparing different investments. It can also be used to evaluate a project or process improvement to decide whether spending money on a project makes sense. The formula is shown below-
- A negative ROI says the project would result in an overall loss of money
- An ROI at zero is neither a loss or gain scenario
- A positive ROI is a beneficial result, and the larger the value the greater the gain
Gain from investment could include many factors, such as energy savings, reduced scrap savings, cost per part due to increased throughput savings, and many more. It is important to analyze the full impact and to truly understand all of the savings that can be realized.
Cost of investment also could have many factors, including the capital cost, installation costs, downtime cost for installation, and others. The same care should be taken to fully capture the cost of the investment.
Example – installing a Super Air Nozzles (14 SCFM compressed air consumption) in place of 1/4″ open pipe (33 SCFM of air consumption consumption) . Using the Cost Savings Calculator on the EXAIR website, model 1100 nozzle will save $1,710 in energy costs. The model 1100 nozzle costs $37, assuming a $5 compression fitting and $50 in labor to install, the result is a Cost of Investment of $92.00. The ROI calculation for Year 1 is-
ROI = 1,759% – a very large and positive value. Payback time is only 13 working days.
Armed with the knowledge of a high ROI, it should be easier to get projects approved and funded. Not proceeding with the project costs more than implementing it.
If you have questions regarding ROI and need help in determining the gain and cost from invest values for a project that includes an EXAIR Intelligent Compressed Air® Product, feel free to contact EXAIR and myself or one of our Application Engineers can help you determine the best solution.