Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. A really good return on investment for an active investor is 15% annually. It’s aggressive, but it’s achievable if you put in time to look for bargains. You can double your buying power every six years if you make an average return on investment of 12% after taxes and inflation every year.
Return on investment (ROI) is an economic measure used to indicate how much economic benefit is derived from a program in relation to its costs. Interest in the use of ROI in public health has grown substantially over recent years. Given its potential influence on resource allocation, it is crucial to understand the benefits and the risks of using ROI to defend public health programs. Here we explore those benefits and risks. We present two recent examples of ROI use in public health in the United States and Canada and conclude with a series of proposals to minimize the risks associated with using ROI to defend public health interventions.
Return on investment (ROI) is a ratio that has come into increasing use over recent years. ROI indicates how much economic benefit is derived from a program in relation to its costs. This ratio, calculated to demonstrate how relevant investments are, has the esthetic quality of being remarkably synthetic. Both private sector and non-profit firms use it to stimulate co-investments. Foundations, for example, seek to attract more funds for their activities by demonstrating to their funding partners that money is wisely invested. In recent years, there has been growing research interest in ROI use in the public health sector. Mainly to demonstrate the economic value of public health programs in a context of rationed public spending.
In this paper, we explore the benefits and risks of using ROI to defend public health programs. The issue is salient because ROI-based public decisions will necessarily influence the public good and people’s well-being and may have an impact on resource allocation and use. To orient our discussion, we present two recent examples of ROI use in public health and explore the context within which its use is expanding in public health economic evaluation. We then discuss the benefits and risks of using ROI to defend public health programs. Lastly, we offer proposals for using ROI information while acknowledging the full range of impacts of programs.
Keys to Take:
• Return on investment (ROI) is an approximate measure of an investment’s profitability.
• ROI has a wide range of applications; it can be used to measure the profitability of a stock investment, when deciding whether or not to invest in the purchase of a business, or evaluate the results of a real estate transaction.
• ROI is calculated by subtracting the initial value of the investment from the final value of the investment (which equals the net return), then dividing this new number (the net return) by the cost of the investment, and, finally, multiplying it by 100.
• ROI is relatively easy to calculate and understand, and its simplicity means that it is a standardized, universal measure of profitability.
• One disadvantage of ROI is that it doesn’t account for how long an investment is held; so, a profitability measure that incorporates the holding period may be more useful for an investor that wants to compare potential investments.