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TCO and ROI Calculation:

TCO Calculation:

Sum of money invested for the entire project

Payback Period:

Divide the initial investment (cost) by amount of yearly savings
Let’s assume, you have initial investment is $3 million and yearly saving is $2 million.
$3 million / $ 2 million = 1.5
Now, your payback period is 1.5 years

ROI (Return on Investment)

Divide the net cost saving per year by project cost.
Let’s assume the your project cost was $4 million and yearly saving were $1 million
$1 million / $ 4 million = $ 0.25 million

Overall Savings:

Annual Savings x No. of years = Total Saving
$1 million x 5 = $5 Millions

Without Initial Investment:

(Overall Savings – initial Investment)/initial investment = ROI
($5 million – $2 million)/$2 million = 1.5 OR 150%

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