Before calculating return on investment, leaders must decide whose return, which costs and which consequences belong inside the boundary.
A housing intervention can reduce hospital use without generating profit for the organisation paying for housing. A professional football supporter can willingly accept little financial return because the investment strengthens an emotional connection with the club. A new stadium can create visible spending around a precinct while merely redirecting expenditure that would otherwise have occurred elsewhere in the city.
All three situations can be described using the language of “return”. Yet they are not measuring the same thing.
That is the problem with ROI when it is treated as a universal number rather than a decision boundary.
The arithmetic is simple. The governance question is not.
The Strategic Context
Return on investment appears objective because the formula produces a ratio. But the result depends on choices made before the calculation begins.
What counts as a benefit?
Which costs are included?
How long is the measurement period?
Which stakeholder's gain matters?
What happens without the intervention?
Is a reduction in one agency's expenditure a genuine economic saving, or simply a transfer of cost to another part of the system?
These are boundary decisions.
A 2020 systematic review by Davison, Ferris, Pearson and Shach examined health-focused housing interventions that included ROI analysis. Only nine studies met the review's criteria. The authors reported positive returns in several interventions, with published results ranging widely and many savings associated with reduced hospitalisation and emergency-department use. They also warned that the evidence base was small, methodologically varied and largely US-focused.
The strategic lesson is not that housing automatically produces high returns. It is that the same intervention can look very different depending on where the economic boundary is drawn.
Healthcare payers may see avoided medical expenditure. A housing provider may see additional service cost. Participants may experience improved health and stability. Governments may care about wider public-service use. Society may value outcomes that never appear in any individual organisation's accounts.
Related article: Value for Whom? Why Aggregate Net Benefit Can Hide Strategic Risk
What Leaders Commonly Misread
The first error is to calculate ROI before defining the objective.
A ratio cannot tell leaders what the organisation should value. It can only compare outcomes that have already been chosen for measurement.
The second error is to treat every saving as new value.
If one department reduces cost by transferring work to another department, the organisation has not necessarily improved. If local entertainment spending moves from restaurants and cinemas to a stadium precinct, gross stadium spending is not automatically additional economic activity.
The third error is to compare ROI figures that use different boundaries as though they were equivalent.
A return calculated from direct organisational savings cannot be compared cleanly with one that includes taxpayer savings, community benefits or broader social value.
The fourth error is to dismiss non-financial value merely because it is difficult to monetise.
Christopher Huth's 2020 study of 760 actual and potential investors in financial instruments issued by European football clubs found that club attachment was central to investment behaviour, while conventional financial objectives were less important for strongly attached supporters. The study's implication was not that ordinary investment discipline should disappear. It was that some people knowingly seek an emotional return as part of the value they receive.
The fifth error is the opposite: using intangible value as permission to avoid financial discipline.
Civic pride, reputation, social cohesion and strategic capability may matter greatly. But calling them valuable does not prove they justify any cost.
Reframing the Issue
ROI should be reframed as a boundary-dependent decision measure.
A useful way to structure the discussion is to distinguish five possible boundaries:
| Boundary | Typical question |
|---|---|
| Project | Does the initiative return more cash or savings than it costs? |
| Organisation | Does the initiative improve enterprise economics after cross-functional effects? |
| Customer or beneficiary | Does the intervention create meaningful value for the person receiving it? |
| Ecosystem or government | Do costs and benefits move across agencies, suppliers, partners or taxpayers? |
| Society | What broader economic, social or environmental value is created or destroyed? |
None of these boundaries is automatically correct.
The right boundary depends on the decision being made.
A private investor may legitimately focus on enterprise cash flows. A government considering a public subsidy cannot stop at the recipient organisation's financial return. A healthcare system evaluating preventative housing may need to consider expenditure across medical and social-service silos. A board evaluating a strategic capability may need to include option value that does not appear as immediate revenue.
The discipline is to state the boundary explicitly before presenting the return.
Strategic Analysis: The Boundary Changes the Story
Prospective activity can overstate genuine impact
Coates and Humphreys' historical review of professional sports facilities provides a strong caution.
They contrasted optimistic prospective economic-impact studies with retrospective academic evidence that often found little or no positive effect on city-wide income and employment. One explanation was substitution: residents may spend money at sporting events instead of spending it on other local entertainment.
Another was leakage. A substantial share of sports revenue may flow to players, owners and others who spend or save outside the local economy.
The exact findings are historical and US-specific, but the analytical principle is durable.
Gross activity is not the same as incremental value.
A transformation program can make the same mistake. A business may claim $20 million of productivity value by adding the estimated savings from every workstream, even though several workstreams depend on the same headcount reduction. A digital program may count every automated transaction as a benefit even though operating expenditure remains unchanged.
The boundary must prevent double counting.
Non-pecuniary value still requires discipline
The sports research also shows that economic analysis can miss benefits people genuinely value, such as civic identity or consumption enjoyment.
That does not mean those benefits should be ignored. It means leaders need a different evidentiary approach.
The question becomes:
- who receives the benefit?
- how material is it?
- is it additional?
- how durable is it?
- and what cost is leadership willing to accept for it?
This is especially important in public policy, brand investment, resilience, safety and capability development.
The organisational bottom line must be clear
Gary Fields' Bottom Line Management argues that organisations should be clear about the objective they are trying to maximise and avoid being distracted by convenient component metrics or ratios.
The useful part of that argument is not that every organisation has one simple financial objective. It is that decision rules must connect to the outcome leadership is actually accountable for.
If a not-for-profit is trying to maximise social impact within a funding constraint, an ROI based only on internal financial savings is incomplete.
If a commercial business is trying to maximise long-term enterprise value, a social benefit that cannot be captured by the business may still matter ethically or strategically, but it should not be disguised as shareholder return.
Clarity protects both commercial discipline and intellectual honesty.
Decision Framework
Before accepting an ROI claim, leadership should work through seven tests.
1. Define the decision
What choice is this analysis intended to support?
Approve, prioritise, scale, redesign, subsidise or stop?
2. Define the beneficiary
Whose return is being measured?
The project, the company, the customer, the government, the community or society?
3. Define the counterfactual
What is likely to happen without the initiative?
Do not compare the proposal with an unrealistic frozen status quo.
4. Separate new value from transfers
Identify benefits that are genuinely additional.
Then separate costs or savings merely shifted between functions, organisations, locations or time periods.
5. Identify non-monetary consequences
Keep material safety, environmental, capability, trust and distributional effects visible even when they cannot be credibly monetised.
6. Test the time horizon
A short measurement period can favour initiatives with immediate benefits and hide longer-term consequences.
7. Show more than one boundary when necessary
For complex public or ecosystem decisions, present multiple views rather than forcing all value into one ratio.
For example:
organisational ROI
taxpayer impact
beneficiary outcomes
broader social consequences
This is often more informative than one “total ROI” number.
Related article: Opportunity Cost Is the Executive Question Behind Cost-Benefit Analysis
From Strategy to Execution
Immediate action
Require every ROI claim in business cases and investment papers to state the measurement boundary directly beside the headline figure.
Ask finance and strategy teams to identify transfers, double counting and benefits dependent on other initiatives.
Medium-term capability building
Develop different appraisal templates for different decision types.
Commercial investments, public-value initiatives, capability programs and regulatory projects do not need identical measures.
Build a benefits taxonomy that distinguishes:
- cashable financial benefits;
- avoided cost;
- productivity capacity;
- customer outcomes;
- strategic capability;
- risk reduction;
- and broader external value.
Long-term strategic positioning
Create a realised-value discipline.
Measure whether the beneficiaries identified at approval actually received the expected value.
Where predicted savings fail to appear in budgets, or where benefits simply move between parts of the system, correct the portfolio model.
The organisation should become better at defining value over time, not merely better at producing ROI calculations.
Signals to Monitor
Leaders should become cautious when:
- a large ROI is presented without a clearly stated beneficiary;
- benefits from several initiatives depend on the same cost reduction;
- “economic impact” measures spending rather than net additional activity;
- savings in one function correspond with unmeasured cost growth elsewhere;
- intangible value is invoked only after financial returns become weak;
- different ROI figures are compared despite different time horizons or boundaries;
- or realised benefits are never tested against the original counterfactual.
Questions for the Leadership Team
- Whose return are we actually measuring?
- Which claimed benefits are new value and which are transfers?
- What important consequences sit outside the calculation?
- If we widened the boundary from the project to the enterprise, would the decision change?
- If we widened it again to customers, taxpayers or society, what would become visible?
- Which beneficiary is accountable for confirming that the value was actually realised?
Closing Perspective
ROI is useful because it forces a relationship between value and resource commitment.
It becomes dangerous when the ratio hides the choices made around it.
Leaders should therefore treat ROI as the end of a boundary-setting process, not the beginning of one.
Define whose value matters. Define what changes because of the investment. Separate genuine gains from transfers. Keep material non-financial consequences visible.
Only then does the return mean what decision-makers think it means.