30% ROI in year one—does EuroTech approve phase two immediately?
Only after post-audit confirms savings are sustained, not a one-off mix month. Phase two needs its own ROI box.
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ROI
ROI: plain-English definition, formula, worked example, how to interpret the result, peer-based benchmark guidance, common mistakes, and management actions in the ZBI Business Control Library.
What is ROI?
Return on investment measures what you earned on a specific spend versus what you put in—(gain minus cost) divided by cost, expressed as a percent. It is not ROIC on the whole enterprise and it is not payback period in months. At EuroTech Invest d.o.o. in Maribor, a EUR 100,000 automation project that returned EUR 130,000 in measurable savings and throughput gain is 30% ROI. I use ROI to compare unlike projects—warehouse retrofit versus CRM rollout—when each has a defined cost box and a documented return box.
Why ROI matters
Capex committees hide weak projects behind strategic language until someone asks for ROI on the same assumptions used at approval. A 30% ROI on EUR 100,000 frees EUR 30,000 of economic gain; a 5% ROI on the same cheque is a bank deposit with implementation risk. When actual ROI trails the business case by half, you either fix utilisation or stop funding phase two. Teams feel low-ROI projects as maintenance burden on systems nobody uses. Finance feels them as depreciation with no offsetting margin.
Formula and variables
ROI % = (Gain from Investment − Cost of Investment) / Cost of Investment × 100
Gain from investment — cumulative benefit in the measurement window (savings, incremental margin, disposal value).
Cost of investment — capitalised spend including install, training, and contingency if capitalised.
Excel: =IFERROR((B2-B3)/B3*100,0) — B2 return/gain, B3 investment cost.
Real business example
EuroTech Invest d.o.o., a EUR 3M precision components plant in Maribor, approved a EUR 100,000 cell upgrade in January: robot loader, tooling, and commissioning. Twelve months later finance and operations agree measurable return EUR 130,000—EUR 95,000 labour and scrap savings plus EUR 35,000 incremental throughput at standard margin. ROI = (130,000 − 100,000) / 100,000 × 100 = 30%. The project sponsor documents assumptions in the capex register; a parallel marketing software spend at 8% ROI is deferred until utilisation on the cell hits plan.
How to interpret the result
ROI compares return to cost for a defined project—scope and horizon must match approval.
- Use the same time window at approval and post-audit—mixing one-year gain with three-year cost distorts.
- Separate cash ROI from accounting ROI when depreciation and grants differ from cash outlay.
- Document what is excluded—allocated overhead inflates or deflates projects unfairly.
- Compare ROI to hurdle rate and to doing nothing, not only to last year's projects.
Benchmark context
Manufacturing capex hurdles in the EUR 2–10M band often sit between 15% and 35% ROI over three years depending on cost of capital and risk—define yours in the capex policy. Benchmark post-implementation ROI to the approved business case within six months of go-live; variance above 20% triggers a root-cause review.
Red flags
- Actual ROI below half the approved business case six months after go-live.
- ROI calculated on gross revenue impact while variable costs doubled on the same volume.
- Multiple projects show high ROI but plant net margin flat—double counting or wrong baseline.
- Capex approved without documented baseline KPIs—no way to prove return.
- Phase two funded before phase one post-audit completed.
Common mistakes
- Counting revenue lift without subtracting variable cost of that revenue.
- Using gross savings while ignoring training and downtime during install.
- No post-implementation audit—projects stay 'successful' on slides forever.
- Comparing ROI on projects with different risk and different measurement periods.
- Including soft benefits without scenario label—best case becomes the official ROI.
What should management do next?
- Require ROI business case with baseline KPIs before any capex above your delegated limit.
- Run six- and twelve-month post-implementation audits against approved assumptions.
- Rank projects by ROI and strategic constraint—fund constraint line first.
- Separate sustaining capex ROI expectations from growth capex in the register.
- Kill or fix projects that miss hurdle ROI at twelve months—document learnings in capex committee.
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FAQ
How is ROI different from ROIC?
ROI is project-specific; ROIC measures total company return on invested capital. Use ROI for discrete spends, ROIC for enterprise performance.
Should training cost sit in ROI denominator?
If capitalised with the project, yes. If expensed, include in denominator or reduce gain—be consistent with approval.
Can ROI include avoided capex?
Yes if documented—e.g. deferred second line because utilisation rose. Label as avoided-cost scenario in the register.
What ROI hurdle for low-risk IT versus production equipment?
Set policy bands—IT may need higher hurdle if benefit is soft; production with measured scrap reduction may accept lower if payback is under eighteen months.
Summary
ROI measures project return against cost. Define scope and horizon at approval, audit actual return at twelve months, and fund the next cheque only when the first project's maths holds.
Reviewed by ZBI Business Control Library · Last updated 2026-06-15