We are often asked how to compute ROI on equipment purchases, building expansions, learning programs, consulting services and other business initiatives. Rarely do we find that quality of care is even considered in the ROI computation. Is the intangible, quality of care, a more important variable than money? What about patient perception? On the face of it ROI seems straight forward to compute. The formula is simple:
ROI (%) = Net Projected Benefits/Project Costs x 100
Just doing the math can lead to the wrong results, missed opportunities and bad decision making. To compute ROI property, you should take a 5-step approach:
- Understand what is driving the decision or desire to buy something or implement an initiative.
You should spend time looking at who is reacting to what and what leads to a purchase or a new business initiative. You should make sure the reactions aren’t just emotion. You should understand the barriers and enablers that impact your success. Understanding how quality of care plays a role in this process is a key factor for consideration. Investing in equipment that supports quality of care results in an intangible more important the converting the investment into money.
- Understand what is needed to be learned to use or implement an initiative.
This may seem straight forward, but it isn’t. How do you assess what needs to be learned? How do you assure consistency in the learning process? How do you assure the leaning process can be repeated efficiently? What does leaning do to quality of care. How does it increase other areas of the business and income statement?
- Understand how you plan on applying or using the initiative or purchase in your practice.
One of the hardest part of any new initiative is applying what was learned in the process. How do you know that trained people will use what they have learned? How do you assure the use of the equipment purchased? What is the plan to implement a program? How do you assure success and assure there is no breakdown implementing the initial objective?
- Understand the business impact of the purchase or initiative
Measuring the business impact is key to calculating the ROI. What is the impact in year 1, year 2, year 3? How long does the business impact last? Can you isolate the impact of the purchase or initiative and remove the impact of other outside influences? Can you convert this to money, or does the analysis need to move to looking at the intangibles which could be far greater than the value of money?
- Convert the results to money or some other intangible
What do you use to convert the business impact to money? Is it a standard unit multiplied by a count? Is it the reduction of other costs? Is it an amount that will save you money in the future? Can you always convert the impact to money? Is money the right measurement of ROI? Is quality of care a more important measurement of ROI than money?
Dental ROI Associates PC – Dental CPAs uses a methodology that is used by Fortune 500 Companies to measure ROI. It is a methodology that is driven by standards and applied consistently to assure the success of the measurement as it isolates the impact of the purchase or initiative to remove outside influences.
Always start with the end in mind. Spend time on the 5 steps laid out above. Understand that converting business impact into money isn’t always the best measure. Look at quality of care as a significant intangible benefit.
Call us or attend one of our Business Forums for Dental Practices to learn the step-by-step results-based approach to calculating ROI.
Greig Davis CPA CVA MST
Dental ROI Associates PC – Dental CPAs