If ROI Is the Only Value Metric, the Portfolio Will Underinvest in the Future

What is easiest to measure can become overfunded, while what creates the future remains strategically underpriced.

Return on investment is powerful because it creates discipline. It forces leaders to ask what benefit is expected relative to cost. It allows comparison. It exposes weak economics. It prevents strategic language from becoming a blank cheque.

The problem begins when ROI becomes the only form of value the portfolio can recognise.

Some investments create value through capabilities that take time to mature. Some protect safety, resilience or regulatory standing. Some create knowledge that reduces the cost of later initiatives. Some establish a platform from which future products, markets or services become possible. Some preserve strategic options even when their immediate cash contribution is modest.

If those effects are ignored because they are harder to monetise, the portfolio can become financially tidy and strategically hollow.

The Strategic Context

Martinsuo and Killen's 2014 review examines how project portfolio research has traditionally emphasised value maximisation, balance and strategic alignment, while drawing increasing attention to broader strategic and non-commercial forms of value. Their paper discusses dimensions such as ecological, social, health and safety, societal influence, learning, knowledge development, future preparedness and longer-term business value.

The authors are careful about the evidence base. Their study is conceptual and synthesises earlier research; it does not prove that every non-commercial value dimension should receive investment in every organisation. That caution is important.

The strategic lesson is not that financial metrics should be displaced.

It is that financial metrics describe only part of the value system.

Commercial organisations still need return. Public organisations still need fiscal discipline. But both can destroy future capability if they systematically prefer investments whose benefits are immediate and easy to count over investments whose benefits are delayed, enabling or shared across the enterprise.

What Leaders Commonly Misread

The first misread is that non-financial value is inherently soft.

It does not have to be.

Safety can be measured through exposure, incident rates, control effectiveness and leading indicators. Capability can be assessed through proficiency, depth, cycle time and reliance on single specialists. Customer value can be tracked through retention, service performance and adoption. Resilience can be tested through recovery time, dependency concentration and redundancy. Learning can be evidenced through reuse, defects avoided, faster decisions or reduced rework.

Not all of these translate cleanly into dollars, but they can still be governed rigorously.

The second misread is that anything called “strategic” deserves funding.

That is equally dangerous.

A weak initiative can hide behind claims such as “builds capability”, “supports innovation” or “positions us for the future”. Without defined outcomes and evidence, non-financial value becomes an escape route from commercial discipline.

The third misread is that value must be judged on one time horizon.

A portfolio has to manage the present and prepare for the future simultaneously. An initiative with attractive short-term return may damage long-term capability. Another may create low near-term return but be necessary to avoid strategic obsolescence.

The portfolio therefore needs to see time as part of value.

Reframing the Issue

The better question is not:

What is the ROI?

It is:

What value does this initiative create, when does that value emerge, how credible is the evidence and what strategic options does it create or close?

This allows financial return to remain central without allowing it to dominate dimensions that it cannot adequately represent.

A useful portfolio distinguishes at least four value horizons.

Immediate economic value

Revenue, margin, cash flow, avoided cost and working-capital effects.

Operational and customer value

Quality, service, throughput, reliability, safety, user outcomes and productivity.

Strategic capability value

Skills, platforms, technologies, data, supplier networks, regulatory competence and organisational routines that enable future action.

Option and future preparedness value

New markets, product arenas, strategic flexibility, resilience and the ability to respond faster when conditions change.

These categories overlap. The point is not to create another complex scorecard. The point is to stop collapsing every strategic choice into a single short-term financial view.

Future Preparedness Is a Portfolio Asset

A portfolio should not only ask whether current initiatives will succeed. It should ask what the organisation becomes capable of after they finish.

This is where project-level thinking often underestimates value.

A single technology pilot may appear unattractive if assessed only on its direct return. But if it creates reusable architecture, develops internal expertise and reduces uncertainty for several larger investments, its portfolio value can exceed its isolated business case.

Likewise, a defence organisation may invest in sovereign capability whose value includes resilience and strategic autonomy. A hospital may fund a data platform whose value depends on multiple future clinical and operational uses. A manufacturer may develop automation capability that makes later productivity investments faster and less risky.

The difficulty is that enabling value is often distributed across future initiatives.

If every project must justify itself solely on isolated ROI, shared capability investments can be systematically underfunded.

The Measurement Asymmetry

Immediate financial value often has established metrics and owners.

Future value often does not.

This creates a measurement asymmetry in portfolio decisions.

A cost-reduction project may arrive with a forecast saving, a baseline and a finance owner. A capability initiative may arrive with a qualitative claim that it “improves readiness”. When these are placed side by side, the project with the cleaner number appears more credible even when the capability investment is strategically essential.

The answer is not to invent false precision.

It is to improve the evidence model for strategic value.

For example, a capability investment can define:

the strategic scenarios in which the capability matters;
the current gap;
the target level of competence or performance;
the lead time to maturity;
the initiatives that depend on it;
the cost of continued dependence on external capability;
the decision points at which further investment should stop.

That is still disciplined investment logic.

Portfolio Balance Is More Than Risk Mix

Martinsuo and Killen review earlier portfolio research that considers balance across project types, risk, novelty, timing and future preparedness.

This suggests a broader leadership question.

A portfolio can be financially attractive in aggregate while being strategically unbalanced.

For example, it may contain too many incremental projects and too few capability-building initiatives. It may optimise near-term margin while leaving technology ageing. It may fund growth but underinvest in resilience. It may meet current customer requirements but create no future product options.

This does not mean every portfolio needs equal investment across categories.

Balance should reflect strategy.

A mature utility, an early-stage technology business, a defence organisation and a hospital should not have identical mixes. The discipline is to make the mix intentional.

Decision Framework: The Multi-Horizon Value Test

For each material investment, ask six questions.

1. What immediate value is expected?

Revenue, margin, cash, cost or direct operational benefit.

2. What enabling value is created?

Capabilities, knowledge, platforms, data, relationships or infrastructure that other initiatives can reuse.

3. What future options become possible?

New products, markets, operating models, partnerships or faster responses to change.

4. What strategic risks are reduced?

Obsolescence, concentration, safety exposure, regulatory risk, supplier dependence or capability fragility.

5. How will we know the non-financial value is real?

Define observable indicators, milestones and evidence rather than accepting vague strategic claims.

6. What is the opportunity cost?

Which other initiatives or capabilities will not be funded if this one proceeds?

A component does not need to score highly on every dimension. It needs a value thesis that fits the role it plays in the portfolio.

Avoiding the Opposite Failure

Once leaders recognise non-financial value, another risk appears: everything becomes strategically valuable.

That destroys prioritisation.

Three controls are essential.

First, materiality. Only include value dimensions that can materially affect the decision.

Second, evidence. Use measurable indicators where possible and explicitly label judgement where measurement is weak.

Third, accountability. Someone must own the claimed value after delivery. If a project is justified because it builds capability, leadership should later test whether capability actually improved.

From Strategy to Execution

Immediate action should add a small number of non-financial value dimensions to portfolio business cases where strategy genuinely requires them. Do not create a universal catalogue of every possible benefit.

Medium-term capability building should establish consistent evidence standards for future preparedness, customer value, resilience, safety and capability. Different categories can use different measures, but they should be reviewed with the same discipline as financial assumptions.

Long-term strategic positioning requires portfolio reviews to examine whether the investment mix is building the organisation the strategy says it will need. If strategy depends on data, technology, regulatory competence, customer trust or specialist capability, those assets should be visible in the portfolio.

The strongest test is whether leadership can explain which current investments are deliberately creating future options and why those options are worth the opportunity cost.

Signals to Monitor

The portfolio may be underinvesting in future value when:

nearly every approved initiative has a short payback horizon;
capability-building work is repeatedly deferred because it cannot compete with direct savings;
technology, skills or infrastructure become urgent only after strategy depends on them;
every innovation project is evaluated against the economics of mature operations;
resilience investments happen mainly after disruption;
project business cases contain vague strategic benefits that are never measured;
the portfolio can explain next year's savings better than the organisation's future preparedness;
leaders repeatedly buy emergency external expertise because internal capability was never developed.

The opposite warning sign is also important: if every weak investment claims intangible value, the organisation lacks strategic discipline rather than strategic foresight.

References

Martinsuo, M. & Killen, C.P. 2014, 'Value Management in Project Portfolios: Identifying and Assessing Strategic Value', Project Management Journal, vol. 45, no. 5, pp. 56-70.
Project Management Institute 2017, The Standard for Portfolio Management, 4th edn, Project Management Institute, Newtown Square, PA.
University of South Australia, Portfolio Stakeholder Engagement & Portfolio Value Management, Week 05 teaching materials supplied for this synthesis.

Questions for the Leadership Team

Which strategic capabilities does our future plan assume will exist that we are not currently building?
Where does our portfolio favour short-term financial return because other forms of value are harder to measure?
Which non-financial value claims in current business cases have clear owners and evidence?
Are we investing enough in resilience, learning and capability to preserve future strategic options?
Which projects would appear unattractive individually but create enabling value across several initiatives?
What strategic value dimensions are genuinely material to our organisation, and which are merely convenient language?
How do we stop future preparedness from becoming a justification for investments that never prove their value?

Closing Perspective

ROI remains one of the most useful disciplines in investment management.

It becomes dangerous only when leadership mistakes a useful measure for a complete definition of value.

Portfolios exist to convert strategy into an investment mix. If the strategy depends on future capability, resilience, learning or strategic options, those dimensions need a legitimate place in the investment system.

The answer is not softer decision-making. It is broader decision-making with stronger evidence.

Fund the present. Build the future. Make the trade-off explicit.

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