PPTTEST 8/25/ :04 1 IT Ron Williams Business Innovation Through Information Technology ROI

PPTTEST 8/25/ :04 2 IT Ron Williams Quantitative Analysis Cost Focus –Total Cost of Ownership – Depreciation + operations + maintenance +… Returns without time value of money –Cash Flow – Benefits/Costs –ROI – Net benefits/Costs –ROA – Net benefits/Assets –Payback Periods – Initial investment/Annual net benefits Returns based on time value of money or cost of capital –Net present value – Net benefits/(1 + cost of capital) n –Internal Rate of Return – Present value of future cash flows – Initial investment = 0 –Discounted Cash Flow - Cash flow based on time value of money –Profitability Index – Present value of future cash flows/ Initial investment

PPTTEST 8/25/ :04 3 IT Ron Williams IT Investment Analysis Capital budgeting process –Companies pick the method of analysis –Cut off points and methods (sometimes) vary with economic conditions Many issues –Who is picking the numbers? –How do you figure in intangibles like ability to compete or customer service? –Who is owns the business case?

PPTTEST 8/25/ :04 4 IT Ron Williams IT Investment Bottom Line The analysis of most projects is not simple Business case must be based on value (TVO) – benefits and costs Intangibles and risks have to be factored in Should be owned by business executive & a component of business plan – Unless IT only project Business processes in place to manage and measure Manage outcomes not just inputs

PPTTEST 8/25/ :04 5 IT Ron Williams Providian Trust – Investment Case

PPTTEST 8/25/ :04 6 IT Ron Williams The Balanced Scorecard…. Translating Vision and Strategy: Four Perspectives To succeed financially, how should we appear to our shareholders? Objectives Objectives Measures Measures Targets Targets Initiatives Initiatives To achieve our vision, how should we appear to our customers? Objectives Objectives Measures Measures Targets Targets Initiatives Initiatives To satisfy our customers what business processes must we excel at? Objectives Objectives Measures Measures Targets Targets Initiatives Initiatives How will we sustain our ability to change and improve? Objectives Objectives Measures Measures Targets Targets Initiatives Initiatives Vision and Strategy Financial Customer Business Process Learning & Growth

PPTTEST 8/25/ :04 7 IT Ron Williams Typical Benefits of IT Related Investments Increased Revenue Increased Revenue Increased Profit Increased Profit Decreased Working Capital Decreased Working Capital Days of InventoryDays of Inventory Days of A/RDays of A/R Reduced SG&AReduced SG&A Increased Gross MarginsIncreased Gross Margins Increased ROCIncreased ROC Customer Satisfaction Customer Satisfaction Market Share Market Share Customer Acquisition Customer Acquisition Customer Retention Customer Retention Customer Profitability Customer Profitability Employee Capabilities Employee Capabilities Information Capabilities Information Capabilities Information SharingInformation Sharing CommunicationsCommunications Availability/ReliabilityAvailability/Reliability FlexibilityFlexibility ResponsivenessResponsiveness SecuritySecurity Financial Customer Business Process Learning & Growth Innovation Innovation Market /Product IdentificationMarket /Product Identification Time-to-MarketTime-to-Market Development CostDevelopment Cost Operations ( All Processes) Operations ( All Processes) Cycle Time Cycle Time Quality Quality Cost Cost Post SalesPost Sales Response Time & DowntimeResponse Time & Downtime Warranty/Returns (Cycle Time & Cost)Warranty/Returns (Cycle Time & Cost) Collections/Payments ( Cycle Time)Collections/Payments ( Cycle Time)

PPTTEST 8/25/ :04 8 IT Ron Williams IT Investment Related Costs Purchase (hardware, software, services) Development, implementation & integration Transition to new system/technology (training & process) Complexity of new technology (skills and processes) Technical risk ( implementation difficulty & staying power ) Future business flexibility

PPTTEST 8/25/ :04 9 IT Ron Williams Risk vs. Value Risk Value LowHigh Low High No Brainer: Just do it No Brainer: Why would you? Requires further analysis Be Careful: These can eat up all the resources with little return

PPTTEST 8/25/ :04 10 IT Ron Williams What Happens as Solutions Move from Operational to Strategic? Value LowHigh Low High No Brainer: Just do it No Brainer: Why would you? Requires further analysis Be Careful: These can eat up all the resources with little return Operational Strategic