The Science of Financial Management: Return on Investment (ROI)

Return on investment (ROI) is a financial tool to measure and communicate public health effectiveness for policymakers, funders, administrators and the general public. Often time, the ROI is conducted as an afterthought, after a project is completed and the funder/stakeholders/executive board needs a report that the money that they invested were justified.  What happens if the ROI is lower than expected? We can turn back time. Instead of using the ROI as a ‘back-end’ financial tool, use ROI as a ‘front-end’ as a forecasting tool to assess the ‘potential benefits’ (in monetary terms) given the ‘cost of the program’.

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Questions to Ask:

  1. Are we making the right investments?
  2. Are we becoming more efficient?
  3. What outcome/benefits are we getting for our buck?
  4. What is our budget accomplishing?
  5. Are we being resourceful?

The purpose of measuring the ROI is to analyze Investment effective to generate profit or benefits and is often expressed in percentage (%).

ROI = [ (cost of the benefits) – (cost of program) ] / (cost of program) * 100% 

When the ROI is greater than what your rate of return, expected value, or threshold of acceptability, then this project/program/policy is probably worth investing.  However, we cannot predict the future (financial tool) is a crystal ball. However, we can conduct a ‘sensitivity analysis’ to assess a range of unknown variables, uncertainly, and unpredictability that may impact our risk tolerance.

Subscribe and stay tune for the next post on “Sensitivity Analysis.” 

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