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Understanding the components of ROI and its impact helps the buyer grasp the overall value of the solution and creates a benchmark by which effectiveness of the tool can be monitored. Elements to consider during an ROI analysis include capital budgeting analysis and estimated TCOR saving. It is also important to consider estimated Internal Rate of Return and Net Present Value: • Internal Rate of Return is often used in capital budgeting. It is the interest rate that makes Net Present Value of all cash flow equal zero. This is the return that a company would earn if it expanded or invested in itself rather than investing externally. • Net Present Value is the present value of an investment's future net cash flows minus the initial investment. If the Net Present Value of an investment is positive, the investment should be made (unless a better investment exists). TCOR is a comprehensive view of risk that includes the various cost components of risk, such as insurance premiums, transaction costs, actual claims costs and legal and other expenses. Aon Insights Increased focus on ROI stems from significantly reduced budgets; most organizations today will only approve projects with clear ROI. In many cases, risk managers are limited to what they can purchase without senior management or board of directors approval. With risk technology, ROI can be evaluated in the following ways: Current and future position of TCOR • Retained and transferred risk costs, including the impact from any improvements in risk/loss control arising from better data and analysis • Internal and external risk management costs Changing costs • Costs of decommissioning existing processes, systems or resources • Internal and external costs of implementing new solutions • Opportunity cost from capital, resource and time investment • Continued or increased risk cost associated with status quo 30 Global Risk Technology Survey 2012 Aon Risk Solutions | Aon eSolutions