Guide: Understanding and Answering Questions on Return on Investment (ROI) as per PMBOK Guide Seventh Edition
Importance: Return on Investment (ROI) is an integral part of cost management as it aids in assessing the efficiency of an investment or comparing efficiencies of different investments. From a project management perspective, it’s crucial because it offers a quantitative measure of the anticipated benefits against the project costs.
Definition: ROI is a ratio derived by dividing the net profit by the total investment. It is usually expressed as a percentage and is often used to make business decisions.
Working: To calculate ROI, the profit of an investment is divided by the cost of the investment and the result is expressed as a percentage or a ratio. Hence, ROI = (Net Profit / Cost of Investment) * 100.
Answering Questions: Read the exam questions carefully to understand the values given and what is asked. Make sure you’re familiar with the formula and calculations – especially on calculating net profits.
Exam Tips:
- The bigger the ROI, the better the investment
- Practice the ROI formula; accuracy in calculations is the key to getting these types of questions right on the exam
- ROI isn't always the best indication of project value, other factors like strategic fit, risk levels, and absolute cost should also be considered.
- Note that unlike other techniques, ROI takes both revenues and costs into account
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Return on Investment practice test
Return on Investment (ROI) is a financial performance measurement used to evaluate the efficiency of an investment or compare the efficiency of multiple investments. In project management, ROI helps in determining the potential benefits a project is expected to bring when compared to the cost associated with executing the project. It is calculated by dividing the net benefits or net profit by the initial cost of investment, and the result is expressed as a percentage. A positive ROI indicates that the project is profitable and contributes positively to an organization's bottom line, while a negative ROI indicates a loss-generating project.
Time: 5 minutes Questions: 5
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Project Management Professional Preparation Package (2024)
- Earn 35 PDUs needed for your PMP certification
- 10928 Superior-grade Project Management Professional practice questions.
- Accelerated Mastery: Deep dive into critical topics to fast-track your mastery.
- Unlock Effortless PMP preparation: 5 full exams.
- 100% Satisfaction Guaranteed: Full refund with no questions if unsatisfied.
- Bonus: If you upgrade now you get upgraded access to all courses
- Risk-Free Decision: Start with a 7-day free trial - get premium features at no cost!