ROI (Did i miss this somehow?)

For some reason, ROI seems like a familiar thing… like something i was supposed to define

Did i miss this homework somehow? …..

ROI – My quick definition

Return on Investment. Simplistically defined – What (how much) are you getting back vs what (how much) are you putting in.

The normal tendency is to put a measure on this – usually money. Earnings vs Expenses (or Investments). But it can also be another relationship such as #Olympic medals vs Total training hours. Either way, it is a form of results or reward for a form of effort put in.

The more interesting part to this simplistic equation is defining what the rewards are (immediate vs important) as well as what the investment effort is.

That is tricky. Wikipedia defines it as :

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Return on investment (ROI) is one way of considering profits in relation to capital invested. Return on assets (ROA), return on net assets (RONA), return on capital (ROC) and return on invested capital (ROIC) are similar measures with variations on how ‘investment‘ is defined.[1]

Marketing not only influences net profits but also can affect investment levels too. New plants and equipment, inventories, and accounts receivable are three of the main categories of investments that can be affected by marketing decisions.[1]

In a survey of nearly 200 senior marketing managers, 77 percent responded that they found the “return on investment” metric very useful.[1]
While Investopedia states :

Definition of ‘Return On Investment – ROI’

A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. 

The return on investment formula:
Return On Investment (ROI)

In the above formula “gains from investment”, refers to the proceeds obtained from selling the investment of interest.  Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken.

Investopedia Says

Investopedia explains ‘Return On Investment – ROI’

Keep in mind that the calculation for return on investment and, therefore the definition, can be modified to suit the situation -it all depends on what you include as returns and costs. The definition of the term in the broadest sense just attempts to measure the profitability of an investment and, as such, there is no one “right” calculation.

For example, a marketer may compare two different products by dividing the gross profit that each product has generated by its respective marketing expenses. A financial analyst, however, may compare the same two products using an entirely different ROI calculation, perhaps by dividing the net income of an investment by the total value of all resources that have been employed to make and sell the product.

This flexibility has a downside, as ROI calculations can be easily manipulated to suit the user’s purposes, and the result can be expressed in many different ways. When using this metric, make sure you understand what inputs are being used.

Read more: http://www.investopedia.com/terms/r/returnoninvestment.asp#ixzz26sMsZlBk

 

So there you have it. I particularly like the argument above that it does not have to be only about money coming in (earnings or monthly revenues or net profits) vs money going out (capital input or monthly expenses). It is a means of measure if the rewards are worth the effort, whether the investment is a one-off or a long-term scenario with periods of evaluation or review.
My case for that could go either way. Is my pay package in teaching worth the 60 hour input each week? Can i afford a place with that? Can i raise a family? Things of that nature. On the other side, if I should be so lucky as to have former students now become colleagues in both architecture design industry as well as in the teaching arena, if I should be so fortunate to receive the honor of being recognized and respected by my community of students and alumni, which gives me much drive and affirmation in what I do for them and for me, how does one measure such an intangible? And yet, how can one deny such a reward for time and effort put in? Romantic? I think it is not all that romantic to recognize immeasureables as also real. It is just fuzzier…

 

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~ by bdytoc on September 18, 2012.

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