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 . Project managers use ROI to evaluate the overall impact that investments have had on the organization . It may also be employed to compare the performance of various projects and identify which should be given priority in the future .

ROI is obtained through the quotient of profit and funds invested . 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) . 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.