We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Business

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is ROI Management?

By I. Ong
Updated: May 17, 2024
Views: 4,232
Share

Return On Investment (ROI) management is a method of assessing profits made on financial investments made by a company. ROI, also known as Rate Of Return (ROR), determines the ratio of an investment with its profit. It can be computed with a formula by first subtracting the amount invested from the amount earned to obtain the return. The return or benefit is then divided by the amount invested to obtain the ROI.

A company can use ROI management to measure opportunities by means of a metric. An opportunity with low costs and high returns will yield a higher ROI than one with high costs and low returns. Such a formula allows management to calculate the risks of investment with a measure applicable to all investments, which can allow an objective assessment.

Breaking down potential investments to figures for the sake of ROI management requires that the company be able to make total cost predictions with reasonable accuracy. It must also be able to compute for the projected revenue that investments will earn. Studying previous similar investments allows the company to make educated estimates, and avoid erroneous figures which might otherwise lead to skewed calculations. This can be challenging when dealing with variable factors such as number of sales made or the impact that might be made by a new competitor on the scene.

ROI management should be balanced with knowledge earned from past experience. Reducing potential investments to figures makes it easy to compare one opportunity to another, but the formula does not take all factors into account. By default, it does not affix values for certain gains that could be made, including brand awareness, customer base growth, earning the goodwill of suppliers, or time invested. The company must still take these elements into consideration before making a decision on an investment.

Once the decision has been made to proceed with an investment, the company must then document all aspects of the process in order to allow for benchmarking. Benchmarking is the procedure of comparing the business's performance against the best that the industry has to offer, with the usual measuring points being cost, quality, and time invested. It is important for ROI management to measure the returns of the company's investments against the best ones from other businesses, as well as good past investments by the company in question. Doing so can allow the company to judge whether too much or too little reliance is being placed on the formula, whether certain factors are not being computed to the detriment of the company's profitability, and ultimately whether a change in the decision-making process is needed.

Share
WiseGeek is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

Editors' Picks

Discussion Comments
Share
https://www.wisegeek.net/what-is-roi-management.htm
Copy this link
WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.

WiseGeek, in your inbox

Our latest articles, guides, and more, delivered daily.