ROI of Digitalisation: the Formula We Use
- Roberto Benanti
- May 11
- 2 min read
"What is the return on investment of this project?" It's the most frequent question we receive when an Italian SME is evaluating a digital transformation project. It's also the most difficult to answer honestly.
Not because the ROI of digitalisation doesn't exist. But because it's almost always calculated incorrectly, underestimating costs and overestimating benefits. In this article we share the framework we use in our assessments, with concrete examples of where the real numbers hide.
Why ROI of digitalisation is almost always calculated incorrectly
The typical calculation we see in SMEs is this: software cost plus implementation cost, compared against an estimated saving in hours. The problem is that this calculation systematically ignores three items that change everything.
1. The cost of organisational change. The time people devote to adopting the new system, training sessions, the weeks of reduced productivity during the transition. On average, in the projects we support, this cost is between 30% and 60% of the software cost.
2. The cost of process adaptation. No software fits perfectly to existing processes. There are always configurations, customisations, integrations. Even when handled internally, they have a cost in time and attention.
3. Intangible benefits, which are often the most significant. Less operational stress, faster decisions, better quality information, fewer errors. These benefits are real but hard to quantify, and are almost always excluded from the calculation.
The framework we use
We don't use a single mathematical formula, because every context is different. Instead we use a three-step framework.
Step 1: measure the cost of the current situation. Before calculating the return on an investment, you need to know how much it costs to do nothing. Hours of manual coordination, errors requiring corrections, delivery delays, reports built by hand every week. These costs are often invisible because they are distributed over time and people.
Step 2: estimate benefits conservatively. We use 50% of the optimistic estimate for quantifiable benefits. Then we add intangible benefits as a separate line item, not monetised but explicitly stated. This makes the estimate defensible even in pessimistic scenarios.
Step 3: calculate the payback period, not the ROI. The ROI percentage is useful but can mislead. The payback period, how many months until the project pays for itself, is the most useful metric for SMEs. A project with an 8-month payback is almost always approvable. One with a 36-month payback needs much more careful evaluation.
A numerical example
A 15-person company was evaluating the introduction of a PM tool for internal project management. Estimated total cost (software + implementation + training): €12,000 in the first year.
Analysis of the current situation: 6 people spent an average of 4 hours a week on manual coordination activities (alignment meetings, status emails, searching for information). At an average hourly cost of €35, that was approximately €43,000 a year in organisational overhead.
Conservative benefit estimate: 50% reduction in overhead, equal to approximately €21,500 per year. Payback period: under 7 months. The project was approved without discussion.
Evaluating a digital transformation project and need a credible ROI estimate?
At SBK Solutions we support SMEs through the evaluation phase, with current situation analysis and defensible benefit estimates. We don't sell optimism: we build numbers that hold up against reality.
Or read all articles in the Digital Transformation category.
