What is Return-on-Investment (ROI)?
Dr. Goetzel: Return-on-Investment is simply a ratio – dollars saved due to a particular intervention divided by the dollars spent on that intervention. So, an ROI of 3:1 means that for every dollar spent, three dollars were saved. It’s important to consider the time horizon for an ROI assessment. For example, a company may save $300,000 over three years from a program that cost only $100,000 – that’s a 3:1 ROI over three years. An ROI evaluation is different than a savings analysis which is sometimes referred to as a calculation of Net Present Value (NPV). NPV is calculated as program savings minus program cost. In the example above, if the program cost $100,000 to implement and saved $300,000, the NPV would be $200,000 ($300,000 minus $100,000). Q: Why does ROI matter? Dr. Goetzel: ROI is a sought after metric in business because owners and senior managers want to understand how much money they need to invest in a given program or intervention, for example one that would reduce the pr
