“Can you help us calculate the return on investment of our program?” We get this question very often. Understandably, return on investment (ROI) is one of the key parameters decision-makers consider. For business enterprises, it is apparent that they need to make a reasonable ROI; otherwise, they will have to close or be acquired by others. But for programs sponsored by non-profits, foundations, and government agencies, it is also important to have a good ROI because financial sustainability is often one of their goals. That is, the program has to sustain itself after the funding ends. The difference is that for non-profits, foundations, and government agencies, the goal could be just to make sure the program at least breaks even. Regardless of the nature of a program, we are able to derive an ROI with the right data.
Our team specializes in ROI estimation for various innovative programs and business models. One of the key challenging tasks in ROI calculation is to estimate program effectiveness and convert it to dollars, i.e., the return. This is because of ROI’s incremental nature that is often missed by analysts. By “incremental” we mean comparison to an alternative, which may be the status quo or a similar population or community. Quantifying program impact requires us to compare the new program to the alternative to estimate additional benefits. Without an appropriate comparison, we could either over- or under-estimate program impact. On the investment side of the equation, we can apply the cost accounting approach to aggregate program costs, including overhead expenses that are sometimes omitted by analysts. We believe resources consumed by senior management and other overhead expenses should be counted; otherwise, ROI tends to be over-estimated. We also address other considerations in ROI estimation including the time horizon for which we should derive economic benefits, the perspective from which ROI should be calculated, and the uncertainty around the ROI estimate. We have extensive experience tackling these issues using the tools in our arsenal, ranging from commonly used approaches to more advanced methodologies.