ROI (Return on Investment)

Definition

Return on investment is the net benefit of an investment divided by its cost, expressed as a percentage. Spend 100, get back 130 net of that spend, and the ROI is 30 per cent. It is used to judge individual investments and to compare competing uses of the same budget.

Whose number is it, really

Every ROI figure is downstream of choices: which benefits count, how they are valued, which costs are in scope, and over what period. In practice the benefits are estimated by the team that wants approval and the cost boundary is drawn by the same hands, so the headline percentage arrives pre-shaped by its sponsors. What a decision-maker rarely sees is the sensitivity: an ROI of 40 per cent that collapses to 5 when one adoption assumption slips is a different proposition from a robust 20, yet on the slide they look like 40 beats 20. The precision of the number, two digits, a percentage sign, borrows credibility the inputs have not earned.

Errors that flatter the figure

• Gross return presented where net was meant, overstating the result by the entire cost base.
• No time dimension: 30 per cent over one year and over five years shown as the same number.
• Soft benefits, productivity, risk avoidance, retention, monetised aggressively and stacked on top of hard ones.
• Measured once, at approval, and never again after go-live, so inflated forecasts face no consequences.