Finance Sample Essay on Return on Investment of a Project’s Soft Returns

Return on Investment of a Project’s Soft Returns

To calculate the return on investment of any particular clinical system must not only involve tangible benefits that are quantifiable but also those that are intangible. These benefits referred to as the soft returns include transformation of business, quality improvement, staff productivity, efficiency of operations, patient satisfaction and cost avoidance. It is challenging to quantify the revenues as well as operating expenses that are related to soft returns obtained from a clinical system investment since there are no cash flows involved. However, there are steps that can be used in justifying soft returns that include identification of an opportunity to improve success; creating a formula to calculate benefits and determine process costs as well as the net benefits.

In identification of the process that requires improvement, an organization should establish the different health care processes that require specific improvements through certain information technology projects to ensure quality services are offered. Some of the processes in health care that have been enhanced through investments in IT include clinical documentation and standardization process, competency testing process, unit dose medication, packing and dispensing process. In development of a formula to calculate the overall benefits, costs in the process and net benefits, there is a challenge of quantifying the soft benefits in financial terms like it is possible with hard benefits. However, there are certain metrics can be applied to measure the impact of the soft benefits and hence their value. Some of these metrics include number of served patients per a service provider’s unit of time; amount of costs in creating a new chart and amount of time spent by staff to locate charts for phone calls or lab results. Others are amount of prescription time spent per physician; rate of reduction in medical errors; level of increase in employee morale; number of new skilled and qualified staff that have joined the organization; magnitude of brand preference; level of professional ethics adopted. Also, the patient quality metrics for instance in diabetics patient  could be the percentage of patients with HA1c’s below seven and for patients in tobacco use it could be the percentage of patients that smoke tobacco receiving education to ensure they cease taking it.

All these metrics can be useful in coming up with the total value of the soft benefits obtained from a system’s investment. After clearly understanding the metrics, it would be possible to convert them into tangible factors. For instance the increase in employee morale which is intangible can be converted to tangible by considering that retention of employee as a result of increase in morale of employees. This saves the organization costs of recruiting and training new employees, the human resources department can then provide tangible figures based on previous year employees turnover like reduce turnover of employees by five percent and make savings of $ 6,000 in costs of new recruitments. To come up with the value of soft benefits the benefits can also be put in categorized groups that quantify them as high, medium and low impact benefits. Then efforts should be made to calculate the total value of each group to a value that is equal to tangible savings previously identified.

The soft cost determination relates to finding out the amount of cash that would be spent on litigations, avoidance of risks, compliance and regulations, quality patient care, improvements of processes. The net benefits include the net value the system has added to the organization in its support to provide quality and efficient services which is determined by taking the overall net increase in profitability arising from soft benefits and deducting the soft costs. The formula for calculating return on project investment would then appear as ROI = (Net soft benefits /Project soft costs) * 100

To support a capital acquisition that enhances the overall quality and effectiveness of services provided by an organization, it would require formulation of a legitimate argument that would logically show the need to acquire such a capital item. It requires calculating the tangible financial benefits and the intangible benefits that can be expected from the capital acquisition versus the costs incurred for acquiring and implementing the asset as well as the costs that would be saved due to the acquisition. It would also require other considerations such as; reviewing alternative capital items, including their cost and benefit data, review of the capital acquisition’s prior performance overall risks associated with it if available, cost should be legitimate and competitive and solvency possible.

It is essential that a project management office is established to help in monitoring the projects that an organization invests in. This is because a project has complexities in varying degrees such as installation of new software and hardware systems, web page upgrading or integration of the project technologies internally in the whole organization as well as with other external organizations. The office will assist in ensuring that the project will be able to meet the organizations strategic goals and make sure there is adequate and appropriate skill set in the organization’s IT staff to enable the success of the project. An example of a soft benefit as an improvement is the attraction of more skilled and qualified staff to an organization which contributes to improving the quality of services provided. The reduction of medical errors is another soft benefit which improves the profitability of the organization since it saves costs if legal suits. Therefore, although it is not easy to quantify the soft returns of an information technology project, it is possible to justify the returns by following a number of steps and using key metrics that assist in finding the value of intangible benefits and the return on investment.