How is BVM different from return on investment (ROI)?
ROI is a financial metric where an investment is compared to a stream of benefits (returns) over time. There are various formulas for return on investment, including simple ROI, payback period, internal rate of return, and discounted cash flow. The basic idea behind ROI is that managers want to know how their business will be improved if they make a given investment. If you limit business value to be only “discounted expected cash flow”, then they are equivalent. However, our definition of business value goes far beyond discounted cash flow and other financial metrics (see above). There are expressions of the ROI concept that fit our expanded business value definition, but we have to go beyond the simple formulas. That’s where Business Value Modeling (BVM) comes in.
