A return-based alternative to IRR (internal rates of return) evaluations

Area of Science:

• Healthcare Financial Management
• Investment Analysis
• Decision Science

Background:

• Healthcare financial managers often choose between Internal Rate of Return (IRR) and Net Present Value (NPV) for evaluating investment projects.
• IRR is intuitive but has conceptual and methodological issues; NPV is theoretically sound but lacks intuitive appeal.
• Communicating investment value effectively is crucial for organizational decision-making in healthcare.

Purpose of the Study:

• To present an alternative investment return measurement method.
• To combine the intuitive appeal of IRR with the theoretical validity of NPV.
• To address the shortcomings of traditional investment appraisal methods in healthcare finance.

Main Methods:

• The study details a novel method for measuring investment return.
• This method aims to retain the intuitive nature of IRR.
• It seeks to mitigate the recognized limitations of IRR and NPV.

Main Results:

• A new metric is proposed that bridges the gap between intuitive understanding and theoretical rigor in investment appraisal.
• The proposed method offers a more effective way to communicate project value to decision-makers.
• It addresses the practical challenges faced in healthcare financial management.

Conclusions:

• The developed method provides a superior alternative for healthcare investment analysis.
• It enhances the communication of project value, aiding strategic financial decisions.
• This approach offers a practical solution to a persistent dilemma in financial management.