Project Charter ROI Calculator
A positive ROI means your project will generate more value than it costs. For Six Sigma projects, sponsors and leadership often require a minimum ROI threshold before approving resources and budget.
Project Charter ROI Calculator
Make data-driven decisions for your Six Sigma projects
What is ROI and Why Does It Matter?
Return on Investment (ROI) is a critical financial metric that helps you determine whether your Six Sigma project is worth pursuing. It measures the financial benefit you'll receive compared to the cost of implementing the project.
Key Insight
A positive ROI means your project will generate more value than it costs. For Six Sigma projects, sponsors and leadership often require a minimum ROI threshold before approving resources and budget.
Understanding the Metrics
Net Present Value (NPV)
The total value of all future cash flows in today's dollars. A positive NPV means the project adds value to your organization.
Simple ROI
The percentage return on your investment. For example, a 150% ROI means you get $1.50 back for every $1 invested.
Payback Period
How long it takes to recover your initial investment. Shorter payback periods are generally preferred by leadership.
Benefit-Cost Ratio (BCR)
The ratio of total benefits to total costs. A BCR greater than 1.0 means benefits exceed costs.
How to Use This Calculator
Step 1: Gather Your Data
Before you start, collect the following information about your project:
- Total Project Cost: Include team time, training, tools, and any other resources needed
- Implementation Time: How long will it take to complete the project?
- Annual Benefit: The recurring yearly savings or revenue increase
- One-Time Benefit: Any immediate gains (like selling old equipment)
- Maintenance Cost: Yearly costs to sustain the improvements
Step 2: Input Your Numbers
Navigate to the Calculator tab and enter your data. The results update automatically as you type.
Step 3: Analyze the Results
Check the Results Explained tab for detailed interpretation of each metric and what they mean for your project.
Pro Tips
Be Conservative: When estimating benefits, err on the side of caution. It's better to under-promise and over-deliver.
Include All Costs: Don't forget indirect costs like meetings, training time, and opportunity costs.
Validate Assumptions: Document where your numbers come from and validate with stakeholders.
Project Inputs
Enter your project details below. All calculations happen automatically.
Understanding Your Results
Here's what each metric means for your project
Your Input Summary
Project Cost: $50,000
Implementation Time: 6 months
Annual Benefit: $75,000
One-Time Benefit: $10,000
Maintenance Cost: $5,000/year
Discount Rate: 10%
Project Lifespan: 5 years
Net Present Value (NPV)
What is it? NPV represents the total value your project will create, adjusted for the time value of money.
How it's calculated:
Breaking it down:
- Start with negative initial investment (money out)
- Add any immediate one-time benefits
- For each year, calculate net annual benefit (annual benefit minus maintenance cost)
- Discount each year's benefit to present value
- Sum all discounted benefits
Why discount? Because $100 today is worth more than $100 in 5 years due to inflation and opportunity cost.
What This Means
NPV is positive, meaning your project creates value for the organization.
Return on Investment (ROI)
What is it? ROI shows how much return you get for every dollar invested.
How it's calculated:
Where:
- Total Benefits = One-Time Benefit + (Annual Benefit x Lifespan) - (Maintenance Cost x Lifespan)
- Total Cost = Initial Project Cost
Example: If you invest $50,000 and get back $150,000 in total benefits, your ROI is 200%.
How to interpret:
- 0% ROI = Breaking even (no gain, no loss)
- 100% ROI = Doubling your investment
- 200% ROI = Tripling your investment
What This Means
Your project generates positive returns.
Payback Period
What is it? The payback period tells you how long it takes to recover your initial investment.
How it's calculated:
The calculator simulates cash flow year by year:
- Year 0: Start with -Initial Cost + One-Time Benefit
- Each Year: Add (Annual Benefit - Maintenance Cost)
- When cumulative cash flow becomes positive: That's your payback period
Example: You invest $50,000 and earn $30,000 net per year. Your payback is approximately 1.67 years.
Why it matters: Shorter payback periods mean faster returns and less risk. Many organizations prefer projects that pay back within 1-2 years.
What This Means
You'll recover your investment in this timeframe.
Benefit-Cost Ratio (BCR)
What is it? BCR compares total benefits to total costs as a simple ratio.
How it's calculated:
Where:
- Total Benefits = One-Time Benefit + (Annual Benefit x Lifespan) - (Maintenance Cost x Lifespan)
- Total Cost = Initial Project Cost
Example: If total benefits are $200,000 and costs are $50,000, your BCR is 4.0 (you get $4 back for every $1 invested).
How to interpret:
- BCR less than 1.0 = Costs exceed benefits (not viable)
- BCR = 1.0 = Breaking even
- BCR greater than 1.0 = Benefits exceed costs (viable)
- BCR greater than 2.0 = Excellent project with strong returns
What This Means
For every dollar invested, you receive this amount in benefits.
Next Steps
If your project is viable: Document these results in your project charter, validate assumptions with stakeholders, and present to leadership for approval.
If your project isn't viable: Consider ways to reduce costs, increase benefits, or explore alternative solutions. Not every improvement needs to be a formal project.
