Does the nonprofit organization where you work, volunteer, or donate your money produce impacts that are worth their costs? Think of any government program – does it achieve results that justify the expenditure of your tax dollars? How would you know? At Wilder Research, we recently had the outstanding opportunity to pursue these questions with a distinguished group of national and local experts and others who joined together for a day of cutting-edge discussions.
Return on investment (ROI) studies can serve as a tool for understanding whether programs that seem to make a difference in the lives of people and communities also have financial benefits that justify continued funding. In an era of scarce resources, such studies can enhance our ability to make wise spending choices. They are not the final word; they do offer more information for our consideration.
Simply stated, ROI studies examine programs (or policies) that have demonstrated positive impacts. They total the costs of a program, estimate the costs potentially averted as a result of that program’s positive impacts, and then compare them. Let’s make up a simple illustration. (Real ROI studies have more complexity; however, this example illustrates the principles involved.)
Let’s say that an after-school tutoring program has demonstrated its effectiveness at reducing the number of children who drop out of school. Based on research, we can estimate the impact that has on reducing delinquency and on improving employment rates for these children who remained in school. Assume the program cost equals $1500 per participant; assume the costs averted by participation equal $9,000 per participant (based on the number who would have entered the juvenile justice system). This program produces a 6 to 1 favorable impact, not even considering the value of enhanced employment for the individual participants and their families, and not to mention the additional financial benefits produced by a better qualified workforce for employers and the community at large.
How might this translate into programs related to issues currently presenting critical challenges to our communities?
The Trust for Health recently reported that spending just a few dollars per person each year on prevention strategies could reduce the incidence of obesity, diabetes, and other diseases and save all of us and our health care system thousands of dollars per person, not to mention the human suffering of chronic illness and lowered life expectancy. As the data show on our Twin Cities Compass web site, obesity trends stand out as some of the most serious, yet largely preventable, health challenges that we face. A dollar spent on prevention can save many, many dollars spent on cure.
Leonard Pitts Jr., in a column this week, challenged all of us to “consider the math.” For some children, a $3,500 investment at age 8 can produce a $60,000 savings 10 years later.
We enjoy the opportunity to collaborate with a network of others from around the nation and the world who seek to bring return-on-investment research into focus, to assist public officials, philanthropists and others who allocate resources to make better decisions – not to mention assisting all of us who volunteer, vote, pay taxes, and make other contributions which we hope will produce as significant a long-term return as possible. We all have limits on our time and our money; it can reassure us to know that we can direct those resources based on the best possible evidence of effectiveness and cost effectiveness.
In a future blog, I’ll say a bit more about some of the key things we learned at last week’s Wilder Research seminar on ROI. If you have thoughts or questions in the meanwhile, please let me know.