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Return on Investment Different ways to measure the benefits

Return on Investment Different ways to measure the benefits. By Paul DeMennato SOZA & Company. OVERVIEW. ROI Definition and Cost Benefit Analysis Definition Reasons to perform Return on Investment (ROI) studies Process to conduct ROI and Benefit Analysis study

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Return on Investment Different ways to measure the benefits

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  1. Return on InvestmentDifferent ways to measure the benefits By Paul DeMennato SOZA & Company

  2. OVERVIEW • ROI Definition and Cost Benefit Analysis Definition • Reasons to perform Return on Investment (ROI) studies • Process to conduct ROI and Benefit Analysis study • Methodology from our study at the Pentagon

  3. ROI DEFINITION: • A business case study comparing the overall cost of implementing a new technology or upgrading business processes with a different technology versus the the way an organization does practices without the new or upgraded technology. • Quantitative Analysis, usually in terms of dollars saved.

  4. Cost Benefit Analysis Definition • Process of analyzing the benefits of the new technology against the way things were performed before. • Takes into consideration the cost of the technology but it also looks at all aspects of the new technology with the benefits. • It does not look just at cost savings, but the value added such as efficiency and timeliness.

  5. Reasons to Perform Studies: • Justification for management. They usually want us too!!! We usually can’t say buy the new technology because we want it. • Typically the Federal government requires analysis for large purchases. • Paves a path for future acquisitions. Easier to get new items if you have shown positive benefits in the past. • Makes engineers and project managers take a step back to look at things objectively.

  6. Process to Conduct Study • 1.) Need the original purpose and goals to measure benefits against. • Usually these are the trouble areas and where the most gains are achieved. • 2.) Document the business processes in place before the new technology is implemented. • Exact steps how they did things before

  7. The Process Continued • 3.) Figure out the cost of the business processes before the new technology. • Cost of when the business process is broken. • Personnel Costs, salaries and benefits. • Maintenance costs. • Baseline of Time requirements to perform tasks.

  8. The Process Continued Still • 4.) Document all cost associated with the new technology. • Software Costs • Maintenance Costs • New Hardware Costs • Contractor Support

  9. Pentagon Methodology: • 1.) Defined the scope and assumptions. • Pentagon is not a regular business. • Business is to effectively defend the United States not to perform sales or service for cost. • 2.) Designed a quantitative baseline. • User and administrator profiles • System breakdown and historical data for 5 years. • Made an educated reasoning of how much it cost for the system to be down.

  10. Pentagon Methodology Continued: • 3.) Analyzed all requirements and documented the costs. • 4.) Took specific examples and documented the savings. • Software Distributions • System Monitoring. • Event Correlation. • User administration • Tivoli Storage Manager Saves

  11. Specific Examples: • 1.) Software upgrade for a major government software application that works with critical database. • Traditional method for 82 clients -- 20 minutes per client = 28 man-hours • New and improved method, 1 hour and 30 minutes **** Upgrade took place on September 11, 2001**** We finished before the attack because of the new technology!!

  12. Examples Continued: • 2.) Emergency Upgrade of government software during mobilization effort. • Traditional method for 82 clients -- 15 minutes per client = 21 man-hours • New and improved method, 1 hour **** Ordered to perform on Friday afternoon at 4:30 PM **** During critical deployment phases of Afghanistan Operation

  13. Specific Examples: • 3.) Real time system monitoring. • Traditional method only monitored key servers once an hour • New and improved method, all systems at thresholds and intervals on average of 5 minutes. To employ the personnel to check just the servers the way we are now would cost: $226,971.60 annually

  14. SUMMARY: A good Cost Benefit Analysis and ROI study can help management and engineers justify their projects. • ROI Definition and Cost Benefit Analysis Definition • Reasons to perform Return on Investment (ROI) studies • Process to conduct ROI and Benefit Analysis study • Methodology from our work at the Pentagon

  15. QUESTIONS?

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