CorrDefense - DoD News about Preserving Military Assets

Top Stories

Calculating Your Return
on Investment

By George Keller

Here is a short lesson on methods of calculating your return on investment (ROI). Return on investment (ROI), or more precisely rate of return on investment, is the ratio of the composite benefits accrued as a result of making an investment to the amount of that investment.

For example, if a $2,000 investment will yield a benefit of $5,000, the ROI is 2.5 – in other words $2.50 for each $1.00 invested. This is particularly valid if the benefits (or savings) are accrued in the same period (normally a year) in which the investment was made. However, since most benefits are realized over a period of years, the time value of money must be considered and the actual value discounted over the periods of benefits.

Usually we evaluate future benefits in terms of their worth at the time the investment is made and we term this the present value of future benefits. The sum of the present value of all future benefits is called net present value or NPV.

So in the above example, if the benefits were accrued at the rate of $1,000 per year for five years, the NPV would be $4,100 (using the OMB [Office of Management and Budget]-recommended discount rate) and the ROI would be 2.05 rather than 2.5.

Click here to read the complete article

Expert Offers Tips on DoD Project Selection

By Cynthia Greenwood

In choosing and funding projects that strengthen the U.S. military's goal of preserving its vast fleet of aircraft, tanks, and ships cost-effectively, the Department of Defense (DoD) Corrosion Office looks for a unique mix of qualities before investing dollars aimed at corrosion prevention.

To be considered, candidate projects must be essential to the DoD's mission of protecting the war fighter. They should promise benefits that are credible and result from work carried out within a relatively brief period. Such projects should also involve two or more military services so that technology is freely shared and coordination is broad-based. But perhaps most importantly, projects that are likely to get funded by the DoD Corrosion Office are expected to offer the taxpayer a high return on investment (ROI).

George Keller

To inform corrosion experts in the commercial sector about the intricacies of Department of Defense (DoD) corrosion project selection, the DoD Corrosion Office sponsored a workshop for members of NACE International, a global society of corrosion science and engineering professionals. George Keller, a facilitator and consultant from the DoD Corrosion Office, presented the workshop to 75 attendees on March 13 during CORROSION/2006, NACE's annual conference in San Diego.

During the workshop, Keller offered methods and tips that would enable participants to identify potential DoD corrosion project sponsors and help those sponsors submit a successful corrosion project plan. "Be familiar with the Corrosion Prevention and Control Planning Guidebook on the DoD Corrosion Exchange Web site," he suggested. "It also helps if companies spearheading a project are willing to partner strategically with their sponsor," he said.

Keller outlined the types of leading-edge projects that the DoD Corrosion Office supports: products or processes new to the military that demonstrate an advanced technology; a novel application of a mature technology; the use of improved corrosion-resistant materials; and research into better prognostics and prediction methods. Keller also discussed various reasons why certain projects do not get selected and offered examples and scenarios to illustrate factors that could make or break project approval.

Keller presented key factors weighed by evaluators on the DoD Project Review Board during the selection process. Addressing what factors might influence evaluators, he offered the following tips: "Evaluators will take note if a real problem exists and your method's features solve the problem, your approach is innovative and the benefits are real and measurable, you offer the best solution, and your approach reflects acceptable risks." He added that evaluators would be impressed as well if an approach could be extended to other systems.

During the workshop participants learned that the DoD Corrosion Office allocated $27 million for corrosion projects and activities during fiscal year 2005, $18 million of which supported projects. That year, the military services provided an additional $17 million in matching funds. During fiscal year 2006, support for corrosion projects decreased to $9 million, with an additional $3 million funneled to activities. In 2006 the military branches provided $9 million in complementary support.

In a useful mini-lesson, Keller instructed attendees about the principles of ROI and why computing ROI is important. He discussed how to calculate ROI for corrosion projects (see Calculating Your Return on Investment), outlining such topics as discounted cash flow methods and the net present value calculation needed to determine ROI, among others.

For details about the workshop or to request a copy of Successful Corrosion Project Planning, please contact George Keller at (713) 551-0097 or e-mail gkeller@comcast.net.