Because of where we are on the calendar as well as the timing of some federal programs, various federal agencies have been (or will be soon) reviewing applications for funding and determining who to award funding to and for how much. Whether a return on investment (ROI) analysis is explicitly required as part of a proposal or whether reviewers apply a more casual assessment of the value of a proposed project, there are a couple of key concepts that need to be understood when evaluating the return of a proposed project. Additionally, there are things those submitting proposals can do to ensure that those performing the evaluation will understand these concepts.
Key Concept #1: Lower Cost Does Not Necessarily Mean Higher Value
It makes sense that proposals that require less funding are intrinsically attractive because they may seem like a “deal.” However, selecting a project or an organization because its proposed budget is the lowest assumes that all projects and organizations who are applying would provide the same value…which is very unlikely. Different individuals and organizations have different strengths and levels of experience and expertise regarding an opportunity. Even if two proposals both indicate that they can meet the requirements and stated goals of the RFP, that does not necessarily mean that they will provide the same amount of value. While it can be difficult to do so, selecting a higher-cost proposal may be prudent and the correct choice if it will produce additional value for patients and/or the funding agency.
What can those submitting proposals do to mitigate the tendency to go with the cheaper option?
Make sure to enumerate and clearly describe the additional value that your project or organization will provide above and beyond others that may be considered. Demonstrate how this additional value merits the proposed budget and stress that the funding amount will be an investment towards this significant value. Make it about the value you will produce, not the cost to the funding agency. That way, those evaluating the proposals will (hopefully) note that the additional experience or tools you bring are not superfluous, but instead provide additional value not offered by a potentially cheaper alternative.
Key Concept #2: Larger ROI does not necessarily mean larger benefits
The ROI metric is a relative one: it reflects how much benefit will be realized per dollar spent. What that means is that ROI is driven not only by the amount of benefit realized, but also by how much investment is required to achieve that benefit. Consider the graph below:
The situation on the left is more costly and has a lower ROI, but also produces significantly more benefits than the situation on the right. So, which is better? It depends. In the healthcare setting, financial savings often reflect aspects of care than can also improve patient experiences and quality of life (e.g., lower incidence and prevalence of disease, less utilization, fewer adverse events, etc.). Therefore, a strong argument could be made that the situation on the left is preferred, even though it has higher costs and a lower ROI than the situation on the right. If those evaluating proposals looked only at the ROI, they may miss out on a project that could result in significantly more benefit.
What can those submitting proposals do to compete against others that may offer a higher financial return?
Make sure that the reader fully understands the breadth and extent of the benefits that would be realized as a result your proposed activities. This may mean explicitly describing the benefits in the aggregate (in addition to the costs and ROI), or it may mean exploring alternative metrics to the typical ROI calculation. As an example, the “payback period” can often be an excellent alternative (or supplement) to ROI. The payback period is the amount of time until the initial investment is recouped. So, instead of simply stating that the ROI will be 10%, one could also state that: “(1) benefits will be significant and (2) costs will be covered within 14 months of the project’s initiation” or whatever is appropriate. In this way, a reviewer is encouraged to focus on the fact that their investment will produce a positive return with a large benefit in a reasonable time frame, as opposed to simply comparing the rate of return to other projects.
Note that there is no standard threshold for what constitutes a “good” or “acceptable” ROI in the healthcare space. Therefore, if reviewers are making a comparison, it is to their own determination of what they feel is acceptable or to competing proposals. In the latter case, those comparisons may be inappropriate because different proposals may involve very different activities that will result in different amounts of benefits. One can even imagine scenarios where a negative ROI would be acceptable: if the financial return was slightly negative but the project produced massive non-monetary benefits in terms of patient experience, quality of life, or other intangibles, it might be worth some level of financial investment that isn’t fully recouped.
So, if you are part of a funding agency or in charge of reviewing proposals for their value, make sure that you understand the full breadth of costs, benefits, and return, not just one dimension of them. The “value” of healthcare research and quality improvement can be so difficult to ascertain that the tendency is to try to boil it down into just a few numbers. Instead, try to consider the totality of the project and the costs and benefits (financial and otherwise) it will produce.
For those looking to secure funding, remember to frame your activities in such a way that the value is understood and (when possible) quantified. It can be tempting to simply provide the requested information and focus on the costs and resources needed to perform the activities. But, that leaves you open to comparisons to others simply based on those parameters. Accentuate the value and benefits your project will provide to allow those reviewing your application to fully grasp the extent of the impact you hope to have.