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Posted: April 30th, 2022
Return of Investment (ROI)
ROI
ROI
Return of Investment (ROI) is a performed to measure and evaluate the returns made in an investment by measuring the investment relative to the cost of the investment (CFI Education Inc., 2020). The health organization conducted a purchase of EHR software for a group of 15 providers with each provider provided with one software that costs $25,000. The one time implementation fee per provider at a cost of $10,000. The annual maintenance fee associated with EHR is estimated to be 18% of the purchase price applied after the first year. The only monetary benefit considered is that each physician will earn $44,000 as incentive (one time only). Therefore, there is need to estimate the ROI (%) at the end of five years for a group of 15 providers.
The ROI can be obtained through the formula:
ROI = ((Gain from Investment – Cost of Investment) / (Cost of Investment)) x 100.
The cost of investment will include the purchase price, one time implementation fee, and maintenance fee for four years.
Purchase price: $25,000 x 15 = $375,000
One time implementation fee: $10,000 x 15 = $150,000
Annual maintenance fee: ((18% x $375,000) / (100%)) x 4yrs = $270,000
reTherefore, Cost of Investment = $375,000 + $150,000 + $270,000
Cost of Investment = $795,000
The cost gain from investment is that each physician earns a $44,000 only one time
Gain from Investment = $660,000.
Therefore, the ROI = (($660,000 – $795,000) / ($795,000)) x 100
ROI = -16.98%
Therefore, based on the ROI (%) at the end of five years which is -16.98% for a group of 15 providers, the health organization is set to make an investment loss of $135,000.
References
CFI Education Inc. (2020). Return on Investment (ROI). Retrieved from https://corporatefinanceinstitute.com/resources/knowledge/finance/what-is-return-on-investment-roi/
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