In the financial world, the DuPont method is used to measure a company’s return on equity (ROE), which is defined as the return on a shareholder’s invested funds. ROE is considered to be one of the best measures when it comes to assessing financial performance.
As clinicians and managers, we operate within resource constraints – and, as a result, anyone working in the public or private system should have a basic understanding of value generation and the economic sustainability of a project.
Understanding economics and the drivers of value generation for patients is useful, because it helps us with optimal allocation of resources for patient care.
This is a great return on equity and is much better than what a typical bank account generates. For example, Apple, Inc. (NASDAQ: AAPL) reported net income of $53.4 billion on $115.5 billion of average shareholders’ equity for the 12 months ended September 2015, a 46.25% return on equity (ROE).
Let me introduce you to the ‘Return on Effort’ formula.
By modifying the DuPont Formula, you come up with the ‘Rege formula’.
Turnover from physical and mental assets (TPMA) – What can the assets generate?
Operating Efficiency (OE) – how well are the assets used?
The assets depend on what the individual is trying to achieve. For a professor, the assets may be knowledge, while for someone in the sporting industry, health and fitness would be an asset.
In psychiatry, one would argue that assets are related to the knowledge of psychiatry.
On the other hand, as I mentioned previously, knowledge of psychiatry is not enough – and, one requires a broader skill set to generate a greater return from the asset base.
The expectations of return differ from individual to individual. Time, money, self-esteem and life satisfaction are all parameters of return.
Could I do things better in my daily life to maximise the use of my assets?
For example, use of software in private practice to increase the amount of time I focus my patients. For e.g. The use of a dictation service to ensure that I can spend more face-to-face time with patients and less time typing my letters.
Here, my aim is quality of care and patient satisfaction.
Stress often conjures up a negative connotation, but this is not always the case. Stress can be divided into positive or negative stress. A certain amount of positive stress, such as mental exertion on a task, is required for optimum performance (eg Yerkes-Dodson’s curve). On the other hand, excessive stress has detrimental effects.
Read more about managing stress for doctors and medical students and looking after one’s own mental health here.
Let’s take a step back and evaluate both formulas.
In order to maximise a company’s return on equity, the company could purchase more assets, make improvements to processing efficiency (eg introducing technology) or take a large amount of debt. But if these steps do not lead to additional sales, then there is no impact (possibly negative impact) to the ROE.
Using the same analogy for the Return on Effort equation, one can focus on three important aspects to improve their quality of life.
According to Richard Feynman, it takes approximately 10,000 hours to become an expert in one’s field.
Thus, time and learning are important assets that are required to improve one’s asset base – but are often under recognised in busy lives.
Imagine if you were to organise your day to focus on the important aspects that help you to work better, for example: using technology to make things easier, delegating tasks to people who perform better, and reducing your perfectionism.
The second part of the equation will increase automatically – which then contributes to an increase return on effort.
Negative stress can play spoilsport in this entire equation, which will not only affect the operating efficiency part of the equation but also results in poor asset health – reducing return on effort overall.
If the equation is applied appropriately, return on effort – using the above equation – compounding over several years can result in a phenomenal wealth of knowledge.
This results in a wealth of life satisfaction and improved quality of life overall.
Recognising that the ‘Rege’ formula, when used appropriately, can generate an improved you.
Smith, R. (2003). What doctors and managers can learn from each other. British Medical Journal, 326(7390), 610.