0 Farrokh Alemi, Ph.D.

Importance of Return on Investments 1

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4 The problem is with our methods Morgan Stanley: “US firms lost $130 billion in unwanted IT systems”

List of Costs & Savings  Underestimates affected business processes  Assumes IT increases revenue  Assumes unused buildings have no costs  Training & maintenance costs ignored  Impact on productivity and quality ignored 5

Proposed Analysis 6 IT Cost Total Other Total Building Total Personnel

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 7

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 8 Central IT budget IT budget in business units +

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 9 Number of times software usedSize of the databasePercent employees using the systemEtc

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 10

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Clear relation in scatter diagram  Large pair wise correlation 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 11

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Clear relation in scatter diagram  Large pair wise correlation 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 12

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Clear relation in scatter diagram  Large pair wise correlation 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 13

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Clear relation in scatter diagram  Large pair wise correlation 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 14 Revenue IT Use Investment

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 15

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 16 Revenue IT investment IT use

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 17 IT investment IT useRevenue

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 18

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 19 StartMiddleEnd

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 20 Correlation of investment & use times correlation of use & revenue is approximately correlation of revenue and investment IT led growth Correlation of revenue & investment times correlation of investment and use is approximately correlation of revenue and use IT followed growth

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 21 Correlation of investment & use times correlation of use & revenue is approximately correlation of revenue and investment IT led growth Correlation of revenue & investment times correlation of investment and use is approximately correlation of revenue and use IT followed growth

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue  Calculate ROI 22

Steps in Proposed Analysis 1. Gather data over at least 3 periods  Money spent on IT  Use of IT by the business unit  Organization’s or business unit’s revenues 2. Examine association between IT cost, use and revenue  Often positive and significant 3. Examine causation  Revenue leads to IT use and investment  IT investment and use leads to more revenue 4. Calculate ROI 23

Investment In DoIT 24 Numerous units were merged into DoIT in this time period. DoIT organization defined based on 2002 operation and budget reconstructed.

IT Investment & University Revenue 25

Example: Evaluation of DoIT The Division of Instructional & Technology Support Services includes:  Audio Visual Services  Academic Computing Labs,  Electronic Classrooms,  GMU-TV,  Instructional Resource Center,  Johnson Center Technology  Student Technology Assistance Resource Center. A key service provided by DoIT is the WebCT course delivery system Time Frame Web-CT Courses Web Seats , , ,627 26

Possible Sequence of Events CauseCatalystEnd resultCondition to be met IT InvestmentUse of WebCTUniversity Revenueρ IR - ρ IU ρ UR =0 IT InvestmentUniversity RevenueUse of WebCTNot logical to expect revenues to affect use University RevenueIT InvestmentUse of WebCTρ RU - ρ RI ρ IU =0 University RevenueUse of WebCTIT InvestmentNot logical to expect use to precede purchase Use of WebCTIT InvestmentUniversity RevenueNot logical to expect use to precede purchase Use of WebCTUniversity RevenueIT InvestmentNot logical to expect use to precede purchase 27

Possible Sequence of Events CauseCatalystEnd resultCondition to be met IT InvestmentUse of Web-CTUniversity Revenueρ IR - ρ IU ρ UR =0 IT InvestmentUniversity RevenueUse of Web-CTNot logical to expect revenues to affect use University RevenueIT InvestmentUse of WebCTρ RU - ρ RI ρ IU =0 University RevenueUse of Web-CTIT InvestmentNot logical to expect use to precede purchase Use of Web-CTIT InvestmentUniversity RevenueNot logical to expect use to precede purchase Use of Web-CTUniversity RevenueIT InvestmentNot logical to expect use to precede purchase 28

Possible Sequence of Events CauseCatalystEnd resultCondition to be met IT InvestmentUse of WebCTUniversity Revenueρ IR - ρ IU ρ UR =0 University RevenueIT InvestmentUse of Web-CTρ RU - ρ RI ρ IU =0 29

Correlations IT investment Web-CT Seats University Revenue IT Investment1 Web-CT Seats University revenue

Possible Sequence of Events CauseCatalyst End result Condition to be met Calculated value IT Investment Use of Web- CT University Revenue ρ IR - ρ IU ρ UR =0 = *.94=.11 University Revenue IT Investment Use of Web- CT ρ RU - ρ RI ρ IU =0 = *.99 =.00 31

Conclusion of Analysis 32 1$ General Revenue 4 cents IT budget

33 Objective Analysis of ROI