Return on Investment: An Analysis

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Description

Return on investment analysis 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

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