IT Investment

Justification

IJ Organizational Guides

Every organization has a

Different approach to justifying
costs
Different risk profile
Different processes/culture from
one college to another, or one
division to another

Most Important Considerations

for Justifying IT Investments

Reduction in operational costs

Reduction in capital costs
Business process
improvement
Improved security/ risk
management
Speed of payback
Improve regulatory
compliance

Purchasing an IT solution

Increase flexibility and

operational efficiency
Reduce business complexity
Use resources more efficiently
Manage costs better

Make Up of an IJ
For each Investment or project, 6 basic
questions need to be addressed:

Why?
Planning

Who?
Coordinati
on

What?
Acquisiti
on

*Focus is on Strategic purchases

*Quantitative Measurements

When
Where?
Deployme
nt

How?
Training

Investment Justification Elements

Generally IJ contains the following sections

*SCIP - STRATEGIES FOR CRISIS INTERVENTION & PREVENTION

Heading/Narrative
Project Narrative
Interoperability problems
Proposed solutions
Expected outcomes
Partners and end users involved
Plan to use or interoperate in public spectrum
Plans to evaluate the Investment

Baseline
Historical Funding
Past funding for Investment
Requested funding for Investment
Dedicated or proposed funding for Investment
Need
Status of Investment, objectives and completed
outcomes to date
Reference PSIC objectives
Governance
Structure
Activities
Stakeholders
Identify internal and external individuals and/or groups
whose interests need to be addressed

Template Criteria

Funding Plan:
Estimated cost for the Investment
Describe external sources

Milestones:
List up to 10 specific milestones for the Investment (i.e.
description, start/end date)

Project Management:
Describe the management team responsible for
implementing Investment
Describe key investment roles and responsibilities,
structures, and subject matter expertise (i.e. the project
manager and contracts management structure)

Investment Challenges:
Describe up to 5 potential challenges (i.e. challenge
mitigation, occurrence probability, and impact level)
Consider technical feasibility of the Investment challenge

Impact
Outcomes:
Describe outcomes that indicate a successful
Investment
Describe reasons why Investment will advance the
communications capabilities for stakeholders
Must also address how the outcomes will be
evaluated
Cost-Effective:
Describe cost-effective measures that will support a
successful Investment
Sustainability:
Describe the long-term approach to sustaining this
Investment

Framework
Strategic/Drive
innovation

Tactical/Reduce
Costs

Transformation

Using Social to
inform content
selection

Information

WebTrends, Radian6

Transactions

Marketing
Automation

Infrastructure

CMS, servers

Quantitative Measures

NPV
Payback Period
IRR
ROI
TCO

Net Present Value (NPV)

Compares cash inflow to cash
outflow to determine best IT
investment commit to.

Considers the time value of money

Time period of 3-5 years

Net Present Value (NPV)

What is Cash Outflow?

Typically represent
capitalization/expense to be
incurred.
Samples:
Cost of software licenses
Infrastructure maintenance
Implementation costs

Net Present Value (NPV)

What is Cash Inflow?

Typically represent savings
made through choice of
investment.
Samples:
Maintenance costs avoided
More efficient costs for labor
(employees engaged in other
higher-value work)
Increased revenues

Payback Period

Time period on when

investment costs will be
recovered through cash
inflow.

Rates set by senior

management

Includes ROI and other

measure of returns.

Internal Rate of Return (IRR)

Logic used with NPV that is

most commonly used in
project and investment
analysis.

IRR = Discount Rate making

value of NPV zero.

If actual discount rate < IRR,

proceed with investment.

Return on Investment (ROI)

Return on Investment (ROI)

Direct return compared to the
direct cost of the purchase
o Cost = Tangible, verifiable
costs
o What counts hardware, software, incremental
headcount, training costs, facility drain, the
Teams preparation time
o What doesnt count opportunity cost, 20%
of someones time is now freed up

o Return = tangible, verifiable

o Revenue
o

19

Why is ROI Important?

It quantifies project value.

It can build stakeholder

support.
It can uncover additional
benefits.
It can lead to project
prioritization
It shortens the purchase
process
It maximize public value

Assessing Your Projects ROI

Potential

Breadth
Repeatability

ROI in IT

Project Cost is calculated by

determining 2 variables
Work Decomposition over Time
Cost of the Work

Common Mistakes to Avoid

when Determining ROI
Don't concentrate on minimizing the cost.

Focus on maximizing the benefit

Don't include unassociated costs (for example,
factoring in the original cost of existing
equipment that will be utilized in your new
project)
Include indirect benefits. Creative thinking is
crucial in thinking holistically about how to
maximize your potential ROI
Include benefits from employees not on the
critical path
Be sure to include the decreased maintenance
required by newer equipment versus the old

Total Cost Ownership (TCO)

Looks at the complete cost from purchase

to disposal
Similar to Cost Benefit Analysis
Originally created to capture long term and
hidden costs
Acquisition/Operation/Growth and Change
Does not assess the upside of comparative
investments
But does surface financial risk during the
latter stages of an investment
Some companies abandoning ROI for TCO
because TCO represents harder costs

TCO Purchase of New System

Factors affecting TCO

Planning and Selection

IT Infra Requirements
Licence Cost
Design/Configuration/Impleme
ntation
Administrative Maintenance
Training Costs

RISK Management
ALL Projects have RISKS !!!
What is Risk? Identifying executional risk,
and how will those deltas be managed?
Recognize risk when you
Buy new does the investment take you
outside of your orgs comfort zone?
Remain with legacy a different risk. Risk to
the business of staying with suboptimal
processes, speed, accuracy, security.

Who is mentoring, pushing responsibility

and ownership to the appropriate levels
within the organization?

Example of IT Investment
Setting up a new file server repository for
a big corporation
Invest in tower, rack or blade server that can
host email or print server, manage complex
databases

Cost:

Benefits of IT Investment to the

Organization
Productivity Boost
Networking and Storage Capacity
Resourceful Management Features
Collaboration using shared folders

Short Clips
Are Your IT Investments Enabling Business
Capabilities?
http://www.youtube.com/watch?v=QJZ4JY-K
nT0

Information Technology Investment

aligned to three roles
http://www.youtube.com/watch?v=vUHU67u
eJpw

Questions
&
Answers
31

References
http://www.isixsigma.com/operations/finan
ce/calculating-roi-realize-project-value/
http://www.nasi.com/roi-analysis.php
http://www.smallbusinesscomputing.com/
testdrive/article.php/3861646/What-isTCO-and-Why-Should-You-Care.htm
http://
newtech.about.com/od/tutorials/a/It-Inv
estment-Calculating-The-Value-Of-An-ItInvestment.htm