ROIbased

ROIbased is an approach in business decision making that uses return on investment as the primary criterion for evaluating projects, initiatives, or actions. In ROIbased analyses, decisions aim to maximize the ratio of net gains to investment costs, rather than relying solely on absolute profit or qualitative benefits.

Calculation: ROI = (Net Profit / Cost) × 100, where Net Profit equals the total benefits minus the total costs associated with the investment. In ROIbased work, analysts may adjust for risk or timing by applying discounting or scenario analysis, but the basic form presents plain percentage returns.

Applications: ROIbased methods are common in project screening, capital budgeting, product development, and marketing campaigns. They are used to rank options, justify funding requests, and communicate expected value to stakeholders.

Methodology: 1) define objectives, 2) identify costs and anticipated benefits, 3) estimate cash flows over the chosen horizon, 4) compute ROI and conduct sensitivity analyses, 5) compare options and select the one with the highest ROI, 6) monitor actual results and adjust.

Limitations: ROIbased metrics can be misleading if not contextualized—ROI ignores non-financial value, strategic alignment, and timing of cash flows. It can encourage short-term thinking and is sensitive to how costs and benefits are defined.

Related concepts: ROIbased is frequently considered alongside NPV, IRR, payback period, and ROAS, which address time value and broader value dimensions.