Return on investment

Return on investment (ROI) analysis is a quantitative method of evaluation. It is used to assess the potential earnings outcome from potential investment or business project. ROI analysis can be used to assist in making business decisions about the future. The practice of using ROI to determine whether or not to move ahead with a project is called ROI Analysis. ROI is defined as the gain from an investment minus the cost of the investment all divided by the cost of the investment.

History

Return on investment analysis appears to have been in use for an extremely long time.

Principal Use

Measuring the future gain from a given project or investment. In this case, the attempt to quantitatively assess the future performance of an IT project is the principal use.

Advantages

Return on investment analysis is a performance measure which allows for a quantitative measure to be applied to a business case decision. This can help remove emotion from a decision by having a standard measure to compare one investment to another.

Shortcomings

All potential variables can be difficult to enter into the analysis. Return on investment analysis can be difficult to include all necessary variables and can not predict potential new variables, or how the investment may trigger unintended consequences. If the return on investment analysis is performed for a small pilot project, the analysis doesn’t always hold true for larger projects.

Examples in Informatics

Return on Investment for a Computerized Physician Order Entry System Rainu Kaushal, Ashish K. Jha, Calvin Franz, John Glaser, Kanaka D. Shetty, Tonushree Jaggi, Blackford Middleton, Gilad J. Kuperman, Ramin Khorasani, Milenko Tanasijevic, David W. Bates Brigham and Women's Hospital CPOE Working Group J. Am. Med. Inform. Assoc. 2006;13(3):261-266. PrePrint published May 1, 2006; doi:10.1197/jamia.M1984

Comments on Return on Investment (ROI) As It Applies to Clinical Systems Mark E. Frisse J. Am. Med. Inform. Assoc. 2006;13(3):365-367. PrePrint published May 1, 2006; doi:10.1197/jamia.M2072 [Full Text] [PDF]

S. Wang A cost-benefit analysis of electronic medical records in primary care. The American Journal of Medicine, Volume 114, Issue 5, Pages 397-403

DESCRIPTION

Return on Investment (ROI) analysis is a quantitative approach that can be used to build a financial business case for any project. The term means that decision makers evaluate the investment by comparing the magnitude and timing of expected gains to the investment costs. Decision makers will also look for ways to improve ROI by reducing costs, increasing gains, or accelerating gains (1). Furthermore, ROI analysis can be used to make a decision about a future IT investment. For a prospective analysis, estimates of anticipated cost and performance are based on assumptions about the future (1,2). Another ROI approach involves a retrospective analysis that can show actual performance data about the IT project’s costs and returns (1). ROI analysis in general is a diverse collection of methods, skills, tools, activities, and ideas. They all may be useful for assessing the relative value over time of some investment. These methods are not, however, a single formula or predetermined calculation that will yield a simple yes-or-no answer to the question of how to invest. Consequently, a meaningful analysis of returns on investment in information technology is far easier said than done. Choices about how to conduct an ROI analysis should be based understandings about:

• The strategic objective(s) of the analysis,
• The place of the proposed IT investment in the overall project
• How the analysis should be done (i.e., what data and methods of analysis are best suited to those objectives) (1,4).

HISTORY: As far as I can research this is technique has been used as long as costs are involved.

PRINICIPAL USE: Defining and measuring the costs and returns from IT investments. Stated another way: the measurement of the difference between the costs of and benefits from an investment (2).

ADVANTAGES: A methodology to help understand and assess the potential cost/investment needed for a project. While there may shortcomings as stated below, cost analysis must at least be done and ROI can provide a basic infrastructure.

SHORTCOMINGS: Measuring impact Assessing/analyzing scale/scope of project Often pilot projects do not reflect the true cost when the project is expanded on a larger scale Not much of an ROI literature base (3).

EXAMPLES IN INFORMATICS: 1. J Med Syst. 2006 Jun;30(3):159-68. Reviewing the benefits and costs of electronic health records and associated patient safety technologies. Describes the challenges in measuring return on investment (ROI) and reviews published ROI studies on health IT, including EHRs. Concluded that articles examining these benefits are much more common than studies examining ROI itself and additional research utilizing broader perspectives and multidisciplinary techniques will be needed before a better understanding of ROI from health IT is achieved.

2. J Assoc Acad Minor Phys. 2002 Jul;13(3):61-5. Return on investment analysis for a computer-based patient record in the outpatient clinic setting. The high cost of CPR implementation has been a major barrier to widespread acceptance of these systems. Describes a framework to evaluate the costs and benefits of implementing CPR systems in outpatient clinical settings. Return on investment (ROI), a, is one method to evaluate the economic implications of CPR. Supported the idea that understanding the ROI framework will enable physicians to make informed strategic decisions regarding purchase and implementation of CPR systems in their practices.

3. Am J Med. 2003 Apr 1;114(5):397-403. A cost-benefit analysis of electronic medical records in primary care. Electronic medical record systems improve the quality of patient care and decrease medical errors, but their financial effects have not been as well documented. The purpose of this study was to estimate the net financial benefit or cost of implementing electronic medical record systems in primary care. Implementation of an electronic medical record system in primary care can result in a positive financial return on investment to the health care organization. Electronic prescribing software is cost-effective for all size practices with a more rapid return on investment in larger practices.

1. J Am Med Inform Assoc. 2006 May-Jun;13(3):261-6. 2006 Feb 24.

Return on investment for a computerized physician order entry system. Concluded hospitals may be able to save money and improve patient safety by investing in CPOE systems.

REFERENCES

1. Cresswell, A. Return on Investment In Information Technology: A Guide for Managers August 2004.
2. J Assoc Acad Minor Phys. 2002 Jul;13(3):61-5.
3. J Med Syst. 2006 Jun; 30(3):159-68.
4. http://en.wikipedia.org

Amit Shah, MD As001