Return On Investment (ROI) analyses aggregate the costs and benefits of an innovation into a single number. It is possible to analyze the ROI of any healthcare innovation, regardless of whether it is a product, service, or combination of the two. However, it can be quite complex to analyze the ROI of healthcare innovations, as they often impact multiple stakeholders. We address this issue by separately examining the ROI of an innovation from each stakeholder’s perspective.
Applications of ROI Analysis
There are multiple stakeholders that can benefit from an ROI analysis:
- Customers appreciate seeing the value proposition of a product or service quantified; ROI analyses put values on both tangible and intangible benefits
- Investors use ROI analyses to understand how businesses generate value; ROI analyses add helpful detail to business plans and pitch decks
- Company leadership can use ROI analyses to drive corporate strategy; ROI analyses reveal how the value delivered to customers can be enhanced
Issues Considered During an ROI Analysis
While an ROI analysis seeks to assess the costs and benefits of an intervention, doing so is often far from simple, as the scale of the benefits and costs must be measured. Often, an intervention will only be utilized by a portion of a population, and only a fraction of the users will benefit. Determining the size of each of these groups can be a challenge. There are four main questions we consider during any ROI analysis:
- Who pays, and how much?
- Who benefits, and how much?
- When do the benefits and costs arrive?
- What are the odds that the benefits and costs will exist?
Information Required to Perform an ROI Analysis
To perform an ROI analysis, we need an operational understanding of how people use the healthcare innovation we are evaluating. Basically, we need to understand which portions of the relevant population will use the innovation and which portions will benefit from it. While we prefer to use measures of costs and benefits derived from real operations, if such numbers are not available (as is often the case with earlier stage businesses), we will attempt to locate numbers from other, similar businesses. If that is not possible, we will make assumptions, but give each assumption a range so that it is possible to determine how sensitive ROI is to the assumptions that have been made. Thus, we can conduct an ROI analysis even if information is only partially available.
Sharing Findings from an ROI Analysis
Once an ROI analysis has been completed, we share our model so that you can understand the factors that impact return on investment. The value of every parameter in the model can easily be changed so that you can experiment and see how dependent your ROI is on different aspects of your business model. Sometimes, doubling price does not halve ROI. Likewise, sometimes a lot of energy is spent worrying about the precise value of a portion of operations that do not substantially contribute to ROI. By explicitly stating all of the assumptions necessary to estimate how you deliver value, we facilitate your understanding how changing those assumptions changes the value that you deliver. The model produced by an ROI analysis can both be used for marketing purposes externally and for strategy purposes internally.
In addition to sharing our model, we typically create several slides that explain how ROI was determined by the model. The ROI estimates on our slides are generated using the baseline assumptions we have made when constructing model. While the numbers may change if you decide to change your assumptions, the slides provide you with a framework for clearly presenting the findings.