Return on Investment Services


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Return on Investment Services

  1. 1. Presented to: NSGIC MidYear Conference March 25, 2007 Building a Business Case for Shared Geospatial Data and Services: Financial and Strategic Analysis for a Multi-participant Program
  2. 2. <ul><li>Bob Samborski </li></ul><ul><li>Executive Director, GITA </li></ul><ul><li>Aurora, Colorado, USA </li></ul><ul><li>— </li></ul><ul><li>Mary Ann Stewart </li></ul><ul><li>Strategic Analysis Lead for ROI Project </li></ul>
  3. 3. Who is GITA? The Geospatial Information & Technology Association (GITA) is a non-profit association focused on providing education and information exchange on the use and benefits of geospatial information and technology worldwide.
  4. 4. Who is GITA? GITA Community Utilities Private Sector Public Organizations Consultants/SME’s System Integrators Software/Hardware Vendors Federal (FGDC, etc.) State County/Regional Local/Public Works Transportation Telecommunications Water/wastewater Electric Oil/Gas Infrastructure Government Private International
  5. 5. ROI Project Co-Sponsors
  6. 6. Project Phases <ul><li>Project Conception </li></ul><ul><li>Literature Review </li></ul><ul><li>Workbook and Template Development </li></ul><ul><li>Case Study Development </li></ul><ul><li>Business Case Development and Return on Investment Methodology </li></ul>
  7. 7. Project Genesis <ul><li>Highly positive response to 2003 GITA Conference Seminar, “ Using Business Case and ROI to Justify GIT Spending ” </li></ul><ul><li>Lack of relevant information on determining ROI for GIT </li></ul><ul><li>Request from FGDC to extend methodology and templates for multi-agency projects </li></ul>
  8. 8. Project Principals <ul><li>Principal Investigators (PI’s) </li></ul><ul><ul><li>Susan Ancel, EPCOR </li></ul></ul><ul><ul><li>Dave DiSera, FICOH </li></ul></ul><ul><ul><li>Nancy Lerner, EMA, Inc. </li></ul></ul><ul><ul><li>Mary Ann Stewart, MA Stewart Engineering LLC </li></ul></ul><ul><li>Project Advisory Committee </li></ul>
  9. 9. Project Objective <ul><li>To develop and document a formal methodology for preparing a business case, including ROI, within utilities and government agencies </li></ul><ul><li>To extend this methodology to multi-agency projects </li></ul><ul><li>To develop a multi-agency case study </li></ul>
  10. 10. Project Benefits <ul><li>Standardized and documented methodology for developing GIT business cases </li></ul><ul><li>Workbook with templates to assist multi-agency projects in applying the standards </li></ul><ul><li>Resource for supporting better GIT investment decisions by agencies engaged in complex projects </li></ul>
  11. 11. Project Rationale <ul><li>Justification for investments comes from business applications </li></ul>BUT… <ul><li>GIT benefits are difficult to predict </li></ul><ul><li>GIT applications are complex and may require significant upfront investment </li></ul><ul><li>Multi-agency projects require a different approach to analysis </li></ul><ul><li>Managers often make decisions with incomplete understanding </li></ul>
  12. 12. Workbook Contents <ul><li>Chapter 1. Introduction </li></ul><ul><li>Why read this book? </li></ul><ul><li>Why read about agencies outside my sector? </li></ul><ul><li>Who should use this workbook? </li></ul><ul><li>How to use the workbook and accompanying CD </li></ul><ul><li>Why build shared data and services business case? </li></ul><ul><li>Chapter 2. Overview of Business Case </li></ul><ul><li>Business Uses of GIS </li></ul><ul><li>Taking a multiple agency approach </li></ul><ul><li>Project Definition </li></ul><ul><li>Financial Analysis </li></ul><ul><li>Strategic Analysis </li></ul>
  13. 13. Workbook Contents <ul><li>Chapter 3. GIT Benefits </li></ul><ul><li>Tangible and Intangible Benefits </li></ul><ul><li>Capturing Productivity Benefits </li></ul><ul><li>Calculating Other Tangible Benefits </li></ul><ul><li>Internal and External Benefits </li></ul><ul><li>Dealing with Uncertainty </li></ul><ul><li>Examples of Benefits for GIT Business Uses </li></ul><ul><li>Chapter 4. GIT Costs </li></ul><ul><li>Start-up and Operating Costs </li></ul><ul><li>Sunk Costs </li></ul><ul><li>Internal Labor Costs </li></ul><ul><li>Examples of GIT Costs </li></ul>
  14. 14. Workbook Contents <ul><li>Chapter 5. Financial Analysis </li></ul><ul><li>Project Life and Cash Flow Schedule </li></ul><ul><li>Time Value of Money (Opportunity Costs) </li></ul><ul><li>Dealing with Inflation </li></ul><ul><li>Common Financial Metrics </li></ul><ul><li>Impact of Recasting Internal Labor Costs </li></ul><ul><li>Sensitivity Analysis </li></ul><ul><li>Chapter 6. Strategic Analysis and the Business Case </li></ul><ul><li>Interpreting a Business Case </li></ul><ul><li>Strategic Benefits as Intangibles </li></ul><ul><li>Chapter 7. Research Findings </li></ul><ul><li>Literature Review Findings </li></ul><ul><li>Case Study Findings </li></ul>
  15. 15. Template Components <ul><li>Project Set-up Sheet </li></ul><ul><li>Current Labor Rates Sheet </li></ul><ul><li>Labor Cost Multiplier Sheet </li></ul><ul><li>Internal Labor Usage Sheet </li></ul><ul><li>Internal Labor Cost Sheet </li></ul><ul><li>Contract and Procurement Cost Sheet </li></ul><ul><li>Productivity Benefits Sheet </li></ul><ul><li>Other Benefits Sheet </li></ul><ul><li>Financial Analysis Sheet </li></ul><ul><li>Productivity Benefit Detail Sheets </li></ul>
  16. 16. GIT is a Critical Investment GIT is a Critical Investment
  17. 17. Why ROI? <ul><li>Large amounts of money involved </li></ul><ul><li>Competition with other investment opportunities </li></ul><ul><li>Ensure full validation of project prior to initiation </li></ul><ul><li>Identification of opportunities to structure project to achieve interim benefits quicker </li></ul><ul><li>Detailed documentation to improve milestone and post implementation reviews </li></ul>
  18. 18. Investment Analysis Is a Fiduciary Responsibility and Public Duty Protect Interests of Citizens & Investors Understand Financial Impact of Projects Select Best from Many Alternatives
  19. 19. Financial Analysis Quantifies Investment Value How long before we see a return? How confident are we in the financial projections? Are there better alternatives for our money? By how much? Do benefits outweigh costs?
  20. 20. Shifting ROI Landscape <ul><li>Traditional models were based on labor savings by implementing technology </li></ul><ul><li>Organizations are much leaner now and often have existing systems, resulting in less incremental benefits available </li></ul><ul><li>ROI should now focus on the financial statement drivers and corporate strategies </li></ul><ul><li>Current “hot buttons” </li></ul><ul><ul><li>Lean Operations (eliminate waste/shorten cycle times) </li></ul></ul><ul><ul><li>Compliance Tracking </li></ul></ul><ul><ul><li>Reliability Centered maintenance </li></ul></ul><ul><ul><li>Asset Management </li></ul></ul><ul><ul><li>Optimization of Material </li></ul></ul>
  21. 21. When Should You Do ROI? <ul><li>Strategy Development </li></ul><ul><li>Project Initiation </li></ul><ul><li>Project Detailed Design completion </li></ul><ul><li>Project completion </li></ul><ul><li>When in operation for some time </li></ul><ul><li>When assessing replacement of the tool </li></ul>
  22. 22. Quantitative Measures NPV Subtract Costs from Benefits ROI Divide Benefits by Cost Break Even Cumulative Benefits Equal Cumulative Costs Pay Back Time from Now to Breakeven Point
  23. 23. Each Measure Has a Best Use <ul><li>NPV </li></ul><ul><ul><li>Best overall measure of financial value </li></ul></ul><ul><ul><li>Higher NPV always identifies better investment </li></ul></ul><ul><li>ROI </li></ul><ul><ul><li>Shows whether benefits outweigh costs </li></ul></ul><ul><ul><li>Inappropriate for comparing investments (can have high ROI with low NPV, etc.) </li></ul></ul><ul><li>Breakeven Point and Payback Period </li></ul><ul><ul><li>Shows whether benefits outweigh costs </li></ul></ul><ul><ul><li>Important political measure </li></ul></ul><ul><ul><li>Inappropriate for comparing investments </li></ul></ul>
  24. 24. Investment Analysis Process Define the Investment STEP 1 Calculate Costs STEP 2 Calculate Tangible Benefits STEP 3 Schedule Cash Flows STEP 4 Perform Financial Analysis STEP 5 Prepare Strategic Analysis STEP 6
  25. 25. Describe & Quantify All Costs <ul><li>Capital/One-time Costs </li></ul><ul><ul><li>Hardware & Software </li></ul></ul><ul><ul><li>Data Acquisition & Conversion </li></ul></ul><ul><ul><li>Start-up Services </li></ul></ul><ul><li>Operating/Ongoing Costs </li></ul><ul><ul><li>New Hires </li></ul></ul><ul><ul><li>Salary Adjustments </li></ul></ul><ul><ul><li>Hardware & Software Maintenance </li></ul></ul><ul><ul><li>Training </li></ul></ul><ul><ul><li>Support Services </li></ul></ul><ul><ul><li>Data License Fees </li></ul></ul>
  26. 26. Typical GIS Costs <ul><li>Hardware integration with pre-existing computing infrastructure </li></ul><ul><li>Evaluation, selection, acquisition and installation of software </li></ul><ul><li>Undertaking requirements/needs analysis </li></ul><ul><li>Contractual aspects </li></ul><ul><li>systems customization </li></ul><ul><li>Applications portfolio development </li></ul><ul><li>Interfacing to other ‘data servers’ and operational systems </li></ul><ul><li>Business case analysis </li></ul><ul><li>Project management </li></ul><ul><li>Delivery and installation </li></ul><ul><li>Business process re-engineering </li></ul><ul><li>Transitional costs (i.e. parallel running of old and new systems) </li></ul><ul><li>On-going cost implications (i.e. staff costs and consumables) </li></ul><ul><li>Data purchase </li></ul><ul><li>Data capture, data conversion </li></ul><ul><li>Data re-survey and validation </li></ul><ul><li>Training, human resources planning, skills development and re-skilling </li></ul>
  27. 27. Applications Drive Benefits <ul><li>Increase productivity </li></ul><ul><li>Add revenue source/enhance collection </li></ul><ul><li>Reduce fee/fine </li></ul><ul><li>Eliminate a service, building, or process </li></ul>
  28. 28. Strategic Analysis Looks Beyond The Money Can We Stay in Business? Growth Morale Safety Goodwill Regulatory Compliance Clean Environment Competitive Advantage
  29. 29. <ul><li>Focused on FGDC sources </li></ul><ul><li>Qualitative information more common than quantitative </li></ul><ul><li>Clarified the need for common methodology for financial analysis of multi-agency projects </li></ul><ul><li>Clarified the need for common approach to strategic analysis for multi-agency project </li></ul>Literature Review
  30. 30. Case Study Development <ul><li>Case study selected from pool of original studies </li></ul><ul><li>WA-Trans chosen to cover a range of applications, benefits and costs </li></ul><ul><li>Refined templates and approach </li></ul><ul><li>In-depth interviews with participating agencies </li></ul><ul><li>Financial analysis based on individual and combined business cases </li></ul>
  31. 31. WA-Trans <ul><li>Washington Transportation Framework for GIS (WA-Trans) </li></ul><ul><li>Project evaluates a proposed future investment </li></ul><ul><li>Complex case study involving 19 participants </li></ul><ul><ul><li>WSDOT in cooperation with Puget Sound Regional Council, Sound Transit, King County Metro, Lincoln County, Spokane County, Walla Walla County, Yakima Valley Conference of Governments, U.S. Bureau of Census Seattle Regional Office, Washington State Department of Fish and Wildlife, Washington Department of Natural Resources, and Washington Utilities and Transportation Commission </li></ul></ul>
  32. 32. WA-Trans Project Description <ul><li>WA-Trans will provide a seamless, statewide transportation location-based data set that includes the best information available about roads, railroads, airports, ferry terminals and routes, port facilities, and non-motorized transportation routes such as bike paths and horse trails. </li></ul><ul><li>The data will be used to improve transportation planning, analysis and design capabilities not only for WSDOT but also for local and regional organizations across the state. Better transportation planning will ultimately lead to better transportation infrastructure and more effectively utilize existing resources. </li></ul>
  33. 33. WA-Trans Total Project Summary <ul><li>Net Present Value: $17.87 M </li></ul><ul><li>Annualized Return on Investment: 10.9% </li></ul><ul><li>Breakeven Point: 2011 </li></ul><ul><li>Payback Period: 4 years </li></ul><ul><li>Inflation Rate: 2.50% </li></ul><ul><li>Opportunity Cost of Capital: 5.0% </li></ul><ul><li>Project Life: 20 Years </li></ul>
  34. 34. WA-Trans Total Project Summary <ul><li>Method for Determining Future Years Cost of Labor, Derived by Applying Average Annual Cost of Living Adjustment to Current Costs: 1.50% </li></ul><ul><li>Total Costs (internal and external): $8.2M for life of project, ranging from $203K to $1.6M per year </li></ul><ul><li>Benefits: $26M for life of project, ranging from $67K to $1.6M per year </li></ul>
  35. 35. WA-Trans Total Project vs. DOT Standalone Project <ul><li>DOT alone </li></ul><ul><li>NPV: $255K </li></ul><ul><li>ROI: 0.17% </li></ul><ul><li>Breakeven point: 2025 </li></ul><ul><li>Payback period: 18 years </li></ul><ul><li>All agencies </li></ul><ul><li>NPV: $17.87M </li></ul><ul><li>ROI: 10.9% </li></ul><ul><li>Breakeven point: 2011 </li></ul><ul><li>Payback period: 4 years </li></ul>
  36. 36. What Happened to WA DOT? <ul><li>DOT assumed majority of cost </li></ul><ul><li>2007: $582K of $593K </li></ul><ul><li>2008: $1.2M of $1.51M </li></ul><ul><li>2009: $1.37 M of $1.64M </li></ul><ul><li>2010: $1.02M of $1.02M </li></ul><ul><li>DOT received modest benefits </li></ul><ul><li>2007: $35K of $57K </li></ul><ul><li>2008: $59K of $1.5M </li></ul><ul><li>2009: $114K of $1.6M </li></ul><ul><li>2010: $454K of $1.2M </li></ul>
  37. 37. WA DOT Breakeven Point
  38. 38. Multi-Agency Breakeven Point
  39. 39. WA-Trans Tangible Benefits <ul><li>Examples of DOT Benefits </li></ul><ul><ul><li>Reduce amount of time to gather data to scope a project in Planning Department = 1260 hours/yr </li></ul></ul><ul><ul><li>Eliminate need for Collision Data and Analysis Branch of TDO to review each accident report to determine jurisdiction = 5240 hours/yr </li></ul></ul><ul><ul><li>Eliminate research/data acquisition time for Highway Usage Branch of Transportation Data Office to acquire usage data on non-state routes = 80 hours/yr </li></ul></ul><ul><ul><li>Cost avoidance on purchase of commercial centerline data = $30K/yr </li></ul></ul>
  40. 40. WA-Trans Tangible Benefits <ul><li>Examples of other agency benefits </li></ul><ul><ul><li>Utility and Transportation Commission: eliminate time resolving address and geocoding errors = 240 hours/yr </li></ul></ul><ul><ul><li>Sound Transit: reduce customer service rep responses = 208 hours/yr </li></ul></ul><ul><ul><li>Dept. of Natural Resources: reduce time compiling trail and forest data for public lands quad map series = 1000 hours/yr </li></ul></ul><ul><ul><li>Five largest counties: eliminate edge matching efforts = 1700 hours/yr </li></ul></ul>
  41. 41. GIS Strategic Benefits <ul><li>Typical strategic benefits from GIS projects include: </li></ul><ul><ul><ul><ul><li>Shared data and services </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Improved accuracy, consistency, timeliness of data </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Better access to data </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Improved services to citizens </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Ability to integrate data among other systems </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Information for improved decision making </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Ability to generate new meaning from the data </li></ul></ul></ul></ul>
  42. 42. WA-TRANS Strategic Benefits <ul><li>Data sharing across county boundaries </li></ul><ul><li>Eliminates need for edge matching </li></ul><ul><li>One source for data eliminates searches and redundant data collection </li></ul><ul><li>Provides means for tracking and communicating progress of projects </li></ul><ul><li>Venue for counties and local government to maintain data </li></ul><ul><li>Reduced liability due to improved accuracy </li></ul>
  43. 43. WA-Trans Strategic Benefits to Large Counties <ul><li>Have a well-established GIS </li></ul><ul><li>No significant change to data maintenance program </li></ul><ul><li>Improved data sharing with other counties </li></ul><ul><li>Conflation of disparate data for use in analysis and decision making </li></ul><ul><li>Streamlined process for planners, replacing manual data review </li></ul>
  44. 44. WA-Trans Strategic Benefits to Small Counties <ul><li>New to GIS, may have nothing in place </li></ul><ul><li>Benefit from common data standards </li></ul><ul><li>Benefit from geodatabase design available for their use </li></ul><ul><li>Use of better control points from counties for other agency flyovers improves accuracy </li></ul>
  45. 45. Functional Class Strategic Benefits <ul><li>WA-TRANS sponsors development of accurate functional class network </li></ul><ul><li>Provides accurate tracking of functional class change process </li></ul><ul><li>Relates to lost opportunities for Federal funding </li></ul><ul><li>Helps resolve disagreements regarding existing classification </li></ul><ul><li>Assists in correct determination of urban vs. rural miles </li></ul>
  46. 46. Economic Development Strategic Benefits <ul><li>FAST Corridor and international freight development </li></ul><ul><li>Need consolidated intermodal data access </li></ul><ul><li>Port development dollars not being spent for WA ($10B for LA) </li></ul><ul><li>Provide regional context for decision making for huge freight projects </li></ul>
  47. 47. Homeland Security/Disaster Recovery Strategic Benefits <ul><li>WA experiences significant flooding and wildfires </li></ul><ul><li>Constrained transportation corridors </li></ul><ul><li>Faster and better recovery efforts with seamless road network </li></ul><ul><li>WA-TRANS makes difference between data and missing/outdated data for E911 </li></ul><ul><li>FEMA Region 9 address range issues for rural counties </li></ul>
  48. 48. Census Bureau Strategic Benefits <ul><li>Census does not have mandate to be a data provider </li></ul><ul><li>Does not plan to continue to update road network </li></ul><ul><li>Access to maintained data essential </li></ul><ul><li>WA-TRANS means counties won’t have to interface with Census as supplier or consumer of data </li></ul>
  49. 49. Comparison of GITA and FGDC Business Case Initiatives <ul><li>Compile a series of business cases documenting the value of collaborative/shared development and access to geographic data and services by government, business, and academia. </li></ul><ul><li>To develop and document a formal methodology for preparing a business case including ROI for GIS initiatives in government and utility organizations. </li></ul>Objectives <ul><li>Steering Committee </li></ul><ul><li>Secretariat Staff Director </li></ul><ul><li>Members of FGDC </li></ul><ul><li>GITA </li></ul><ul><li>AWWA Research Foundation </li></ul><ul><li>FGDC </li></ul><ul><li>GeoConnections </li></ul>Project Sponsors FGDC’s Business Case Initiative GITA’s ROI Research Project
  50. 50. Comparison of GITA and FGDC Business Case Initiatives <ul><li>Perform Literature Review </li></ul><ul><li>Compile results </li></ul><ul><li>Participate in GITA’s Case Study Phase </li></ul><ul><li>Publish Results </li></ul><ul><li>Perform Literature Review </li></ul><ul><li>Conduct Users Survey </li></ul><ul><li>Create Workbook, Templates, and Instructions </li></ul><ul><li>Conduct 5 Case Studies </li></ul><ul><li>Publish ROI Workbook </li></ul>Project Phases <ul><li>Review literature and select current practices </li></ul><ul><li>Document and publish selected business cases of collaborate development / access to geographic data and services </li></ul><ul><li>Develop a methodology for estimating the financial value and ROI </li></ul><ul><li>Tailor the methodology to match the typical application areas and expected costs and benefits of GIS </li></ul>Research Approach FGDC’s Business Case Initiative GITA’s ROI Research Project
  51. 51. Comparison of GITA and FGDC Business Case Initiatives <ul><li>WA-Trans Case Study completed </li></ul><ul><li>Multi-agency version published March 2007 </li></ul><ul><li>Seminars, webcasts planned to raise awareness </li></ul><ul><li>Six Case Studies completed </li></ul><ul><li>Workbook published in March 2007 </li></ul><ul><li>Case Study updates planned for distribution via ROI Community of Practice </li></ul>Current Status <ul><li>Supporting documentation for better GIS investment decisions involving collaborative development and access to geographic data and services </li></ul><ul><li>Resource(s) for supporting better GIS investment decisions </li></ul><ul><li>Standardized and documented methodology for developing GIS business cases </li></ul><ul><li>Workbook with templates to assist organizations in applying the standards </li></ul>Project Benefits FGDC’s Business Case Initiative GITA’s ROI Research Project
  52. 52. Project Status <ul><li>AWWARF publication in process </li></ul><ul><li>GITA publication released at GITA Conference March 2007 </li></ul><ul><li>FGDC publication released at NSGIC March 2007 </li></ul><ul><li>Planning next phase of ROI research with current and new partners </li></ul>
  53. 53. <ul><li>Questions? </li></ul>