Return on Investment (ROI)
Abstract
The Return on Investment, widely referred to as simply ROI, is a crucial financial tool in Project, Portfolio, and Program Management. It provides valuable insight into the effectiveness and efficiency of investment decisions made [1]. Project managers use ROI to evaluate the overall impact that investments have had on the organization [2]. It may also be employed to compare the performance of various projects and identify which should be given priority in the future [2].
ROI is obtained through the quotient of profit and funds invested [2]. This metric is favoured for its ease of calculation and ability to facilitate comparisons between investment options. Despite its popularity, it is crucial to acknowledge that ROI does not factor in the time value of money, unlike other metrics such as Net Present Value (NPV) and Internal Rate of Return (IRR) [3] [4]. This limitation should be taken into consideration when using ROI to evaluate the performance of a project.
This article will explore the concept and practical applications of the ROI method. It will start by outlining the principles behind the use of ROI and then delve into its calculation. To ensure objectivity, the limitations of the method will be discussed. Finally, a section will be dedicated to presenting an annotated bibliography of key references utilized in the preparation of the article.
Contents |
Big Idea
- Define ROI and how it is calculated
- Explain how ROI applies to project, portfolio, and program management
- Discusses the importance of ROI in decision-making
- Identify the benefits and challenges of using ROI in project management
Application
- Provide examples of how organizations have successfully used ROI to make decisions about project selection and resource allocation
- Describe the steps involved in calculating ROI for a project, portfolio, or program
- Discuss the importance of setting clear goals and objectives for projects to accurately measure ROI
- Identify some common pitfalls to avoid when using ROI in project management
Limitations
- Identify factors that can impact the accuracy of ROI calculations
- Discuss the challenges of measuring intangible benefits and costs
- Highlight limitations of using ROI as the sole criteria for project selection and resource allocation
Discussion
- Mention key findings of the wiki article and reflect on their implications for project, portfolio, and program management.
- Consider the benefits and drawbacks of using ROI as a decision-making tool
- Compare and contrast ROI with other decision-making tools and frameworks
- Offer recommendations for how organizations can improve their use of ROI in decision-making.
Annotated bibliography
References
- ↑ J. Rowan, (2018). "The Importance of ROI in Project Management". Journal of Business and Economics Research. 6(8), pp. 195-202.
- ↑ 2.0 2.1 2.2 Stobierski, T. (2020, May 12). How to Calculate ROI to Justify a Project | HBS Online. Business Insights - Blog. https://online.hbs.edu/blog/post/how-to-calculate-roi-for-a-project
- ↑ Dearden, J. (1969, May 1). The Case Against ROI Control. Harvard Business Review. https://hbr.org/1969/05/the-case-against-roi-control
- ↑ Birken, E. G. (2021, March 17). Understanding Return On Investment (ROI) (B. Curry, Ed.). Forbes Advisor; Forbes. https://www.forbes.com/advisor/investing/roi-return-on-investment/
