One of the most common reasons healthcare organizations reach out to me these days is because they have been asked by someone else to perform an ROI analysis. That is, their funder (or potential funder) says to them, “say, can you perform an ROI analysis as part of your write-up or application?”

It seems like a perfectly reasonable request. But, when I push a little further and ask a few questions about what, specifically, they were asked to do and why it’s wanted, more often than not they realize that they’re a little light on information. Most of the time, their funder offered little to no specifics regarding what they were expecting, nor did they explain why they wanted it or what it would be used for. At this point in our conversation, I typically hear something like, “You know…I don’t think our funder even knows what they want or why they want it…” and they trail off.

If this sounds familiar, don’t worry: you’re in good company. It’s common for funders and potential funders (or payers) to ask for an ROI analysis, and it’s almost just as common for them to not really know what they’re asking!

So, if you find yourself in this situation, what should you do? Here’s what I have told others:

1. First, the best path forward is to reach back out to the funder and ask them if they have any specific guidance regarding what they are expecting in terms of an ROI analysis. If they don’t know, then asking them why they want it, who they want to share it with, or what it will be used for can help identify what components will be crucial to include. Most likely, they will appreciate you helping them to think through their needs to get clear about what they want, and they will better recognize the complexity involved in doing ROI correctly and accurately.

2. In the case where this isn’t possible or where these questions do not provide much information, the next step would be to propose to the funder what the ROI analysis will entail, prior to ever starting it. This accomplishes two things:

a. First, it demonstrates some expertise (or at least forethought) regarding ROI when it’s likely that the funder has little in this area (otherwise they would have been more specific about what they want); this gives you and the results you present credibility because you’ve demonstrated that you know what you’re doing.

b. Second, it sets you up for success because you will get to control what is in the analysis and set their expectations for what they are likely to receive; any time you can manage expectations you increase the chances that your analysis will be well received.

In each case, it is important to engage the funder to make sure you really understand why they want an ROI analysis and what it will be used for – even if you have to draw it out of them. If you can demonstrate that you are going to try to deliver something that will help them accomplish their goals and that they can easily share with their key stakeholders and decision makers, they will see you as a partner more than an applicant or awardee.

When proposing an ROI methodology to a funder/payer, there are a few key points to be sure to cover.

  • First, clearly explain what an ROI analysis represents, and what it does NOT. As I discuss in my book, ROI is but one aspect of value, and a very specific aspect: namely the financial return from a single perspective. Almost always these types of ROI analyses will be performed from the perspective of the funder, so that’s straight-forward, but it’s good to point out all of the costs and benefits to other parties will NOT be included.  Nor will non-monetary aspects like quality of life, patient/staff satisfaction, etc. These are important aspects of value but are often outside the reach of an ROI analysis.
  • Second, be clear about the scope, meaning the aspects that will be reflected and over what time period.
  • Third, list the general categories of costs and benefits and assumed sources of those values that you are anticipating; including an example, even if it is in narrative form, can help solidify what this will look like. As in, “we’re anticipating that the main benefit will be a reduction in utilization that stems from better disease management; we’ll measure this using claims and will be able to estimate things like the number, type, and cost of hospital stays and ED visits. This will not reflect benefits like patient satisfaction, risk-pool bonuses/penalties, or other sources…” Even this general statement provides some parameters for what they can expect when they receive the results. This can help them more easily identify if it will meet their needs or what may need to be modified. It is much better to identify these things before starting then after the analysis is completed.
  • Finally, it can be helpful to describe how the results could be used: “We will be able to estimate how long it will be until the initial investment will be recouped…” or “We will be able to clearly identify main drivers of costs/benefits because we’ll be able to split them into categories associated with facilities, labor, and process…”

Ideally, this conversation will start a larger dialogue around the value of what you and your organization seek to accomplish. And, it will allow the funder to be more specific in the future and even look to you as having specific expertise in this area.