Return on Investment

A measure of an investment's profitability, calculated as the net gain from the investment divided by its cost.

Source: Brealey, Myers & Allen 2019

The net gain from an investment is divided by its cost, giving a proportion or percentage. In health applications the gain is usually the value of resources released or outcomes achieved, and the cost is the expenditure required to achieve them. Because the calculation produces a ratio rather than an amount, it says nothing about the scale of the investment, so a small scheme returning a high proportion can appear better than a large one generating far more value in total. Reporting the underlying totals alongside the ratio therefore matters more here than for measures that already express magnitude.

Source: Brealey, Myers & Allen 2019

Because it communicates a result in a form that non-specialist audiences understand, and because many prevention programmes are argued for on the basis that spending now avoids larger spending later. The measure states that relationship directly. Its popularity in advocacy has, however, produced published figures that vary enormously for similar interventions, reflecting differences in what was counted, over what period and from whose perspective rather than differences in the programmes themselves. Published figures for the same class of intervention frequently differ by an order of magnitude, which reflects methodological variation rather than genuine differences in performance.

Source: Drummond et al. 2015

It ignores scale, so it cannot rank projects competing for a fixed budget without further information. It is highly sensitive to the boundary drawn, since including productivity gains or savings falling on other sectors can multiply the figure. Where the calculation is undiscounted, it treats distant savings as equivalent to immediate ones. And it takes no account of whether the projected savings would actually be released as cash rather than as notional capacity. A further weakness is that the measure has no accepted convention for what belongs in the numerator, so two analysts costing the same programme can defensibly report very different returns.

Source: Drummond et al. 2015

Cost-effectiveness expresses the additional cost per unit of health gained and compares that against a threshold representing what the system is prepared to pay. Return on investment expresses gains in money and asks whether they exceed the outlay, which requires health benefits to be monetised or excluded. An intervention can show a favourable return while being poor value in health terms, and the reverse, because the two measures count different things. This is why frameworks specifying cost-effectiveness as the reference case rarely accept a return on investment figure as a substitute for it.

Source: Drummond et al. 2015

The perspective and boundary, since these determine what counted as a gain. The time horizon and whether flows were discounted. Whether the gains release cash, fall on the same budget and arrive within the period. And the underlying cost and benefit totals rather than the ratio alone, so a reader can see the scale involved and reconstruct the calculation on a different boundary if their own decision requires it. Where the figure is being used in advocacy rather than appraisal, the same reporting requirements apply, since an unqualified ratio circulating without its assumptions is the commonest way such estimates mislead.

Source: Brealey, Myers & Allen 2019