Return on Investment (roi) for Multi-Technology son juan Ramiro, Mark Austin and Khalid Hamied

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SELF 4

100	0	–100	0
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NPV (€ million) 25
Discount rate (%) ²⁰
Figure 7.3 Differential cash flow and NPV associated with the delay of the need for CAPEX expansions.
reduction through better resource utilization and the subsequent lower need for leased lines for transmission; (iv) fewer CAPEX expansions due to capacity increases through careful adaptive optimization; and (v) more rational and accurate decision processes for CAPEX expansions.
As can be seen, due to the exponential nature of the equation that describes the computation of the NPV, the mere delay of the need for a CAPEX expansion creates value for the operator. Let us assume a simplistic sample scenario in which the forecasted CAPEX expansions for years [1-5] are €[100, 100, 0, 0, 0] million (measured at the end of each year; Figure 7.3). If the impact of applying SON techniques causes a delay of one year in the need for capacity expansions, the CAPEX forecast will become €[0, 100, 100, 0, 0] million. In this case, the differential cash flows for years [1-5] due to the application of SON is €[100, 0, −100, 0, 0] million. However, the different annual components do not just cancel out, since each one of them is multiplied by a different factor that depends on time and therefore reduces the relative weight of contributions with a larger value of n, i.e. reduces the relative importance of capital outlays in the future (see Figure 7.3). With a discount rate of 20%, the NPV of this delay is €25 million.
The calculations described so far do not consider the cost of the SON solution. This cost needs to be deducted from the NPV of its forecasted benefits in order to compute the actual value that the decision to purchase and deploy a SON solution will bring to the operator. Note that such a simple calculation process (i.e. deducting the cost of the solution from the NPV of the forecasted benefits) implies that the solution has been purchased (and paid for) at the beginning of the assessment period and that the associated benefits are evaluated on an annual basis, starting with a first calculation at the end of the first year. If the cost of the solution is incurred in different stages, this needs to be considered in the calculations, since the differential cash flows for the operator will change. Similarly, higher accuracy could be obtained by increasing the resolution of the analysis, e.g. using monthly periods instead of annual ones.
Another illustrative indicator for ROI is the payback period, defined as the time the solution takes to pay for itself. This method is simpler and does not include risks or value depreciation factors. At each point in time, the cumulative cash flow is computed by simply adding the differential cash flows of all the already elapsed periods. When this magnitude equals the cost that was incurred to deploy the solution, the payback time has elapsed (see an example in Figure 7.4).

Figure 7.4 Payback time.

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