Business Innovation Through Information Technology

1. Business Innovation Through Information Technology ROI

2. 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

3. 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?

4. 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

5. Providian Trust – Investment Case

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

7. Typical Benefits of IT Related Investments Business Process Financial • Increased Revenue • Increased Profit • Decreased Working Capital • Days of Inventory • Days of A/R • Reduced SG&A • Increased Gross Margins • Increased ROC • Innovation • Market /Product Identification • Time-to-Market • Development Cost • Operations ( All Processes) • Cycle Time • Quality • Cost • Post Sales • Response Time & Downtime • Warranty/Returns (Cycle Time & Cost) • Collections/Payments ( Cycle Time) Customer Learning & Growth • Customer Satisfaction • Market Share • Customer Acquisition • Customer Retention • Customer Profitability • Employee Capabilities • Information Capabilities • Information Sharing • Communications • Availability/Reliability • Flexibility • Responsiveness • Security

8. 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

9. Risk vs. Value No Brainer: Just do it High Requires further analysis Value Be Careful: These can eat up all the resources with little return No Brainer: Why would you? Low Low High Risk

10. What Happens as Solutions Move from Operational to Strategic? Strategic Operational No Brainer: Just do it High Requires further analysis Value Be Careful: These can eat up all the resources with little return No Brainer: Why would you? Low Low High