Now that you've gathered data on the costs and savings, you can place each in the appropriate year. If you are using the financial modeling tool, the results are generated for you. Otherwise, get out your calculator and calculate the net values at the initial year and each of the subsequent years. Now calculate ROI using the formula we covered earlier:

ROI = ((net year 1 + net year 2 + net year 3) / 3 / initial cost) X 100

Payback period is a little more difficult to calculate, but as we mentioned earlier, it is a very important indicator of risk. Follow the formula we covered earlier.

If you are concerned about the after-tax ROI, be sure to use the Nucleus modeling tool. This will calculate the payback period and will adjust for the tax rate and discount rate. The discussion on taxes is far more detailed than can be covered here.