Culmsee Cio 248 How To Roi

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SharePoint ROI slide session from Feb 09 SharePoint Best Practices Conference

SharePoint ROI slide session from Feb 09 SharePoint Best Practices Conference

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  • 1.
    • “ Technology provides no benefits of its own; it is the application of technology to business opportunities that produces ROI.” - Robert McDowell - In Search of Business Value
  • 2. Think like a CFO. Techniques to quantify SharePoint ROI CIO248 Paul Culmsee
  • 3.
    • Paul Culmsee, MCT, MCSE, CISSP
      • Seven Sigma Business Solutions
      • www.sevensigma.com.au
      • [email_address]
      • Author of cleverworkarounds.com blog
      • SharePoint architect, Trainer, Dialogue and Issue Mapping practitioner, author for SharePointMagazine.net & EndUserSharePoint.com Reformed tech geek, Metalhead
  • 4. Session Aims and Agenda
    • Aims
      • Introduce basic financial concepts to tech people
      • Introduce SharePoint cost areas to finance people
    • Agenda
      • How investments are valued
      • Building a decision model in 5 steps
      • How to handle uncertainty in estimating
      • Sample SharePoint ROI Scenario
  • 5. Time value of money
  • 6. A pint of beer in Australia
    • 1920: 10-15c
    • Last weekend: $8
  • 7. Looking at the future
    • $100 today (Present Value) will buy more beer than $100 in the future (Future Value).
    • The example below assumes 3% inflation rate
    • We are discounting the PV to arrive at a FV
    Year Future Value (FV) 2008 $100 2009 $97.09 $100 / (1+.03) 2010 $94.26 $100 / (1+.03) ^2 2011 $88.85 $100 / (1+.03) ^3 2028 $55.37 $100 / (1+.03) ^20
  • 8. A Simple ROI model
    • Take the costs of an investment over its life
    • Estimate the savings of an investment over its life
    • Express this as a cash flow
    Year Cash out Cash in Cash Flow 0 -$100,000 0 -$100,000 1 -$20,000 $40,000 $20,000 2 -$20,000 $60,000 $40,000 3 -$20,000 $80,000 $60,000 Total $20,000
  • 9. A Simple ROI model
    • Take the costs of an investment over its life
    • Estimate the savings of an investment over its life
    • Express this as a cash flow
    Year Cash out Cash in Cash Flow 0 -$100,000 0 -$100,000 1 -$20,000 $40,000 $20,000 2 -$20,000 $60,000 $40,000 3 -$20,000 $80,000 $60,000 Total $20,000
  • 10. Risk and return
    • Organisations often have to borrow money to fund projects
    • Organisations with cash can earn 4-6% interest with little risk
    • Why would you undertake a risky project if it returned 6%?
      • It is not covering financing cost or;
      • Park the money and earn interest risk free
      • This is called “Cost of Capital”
      • We need to discount the cash flows (DCF) by the cost of capital
  • 11. The discounted ROI Model
    • Let’s assume an 8% cost of capital = 0.08
    Year Cash out Cash in Cash Flow 2009 -$100,000 0 -$100,000 2010 -$20,000 $40,000 $20,000 2011 -$20,000 $60,000 $40,000 2012 -$20,000 $80,000 $60,000 Total $20,000 Year Cash out Cash in Cash Flow Discounted Cash Flow 2009 -$100,000 0 -$100,000 -$100,000 2010 -$20,000 $40,000 $20,000 $18518 (20000 / 1.08) 2011 -$20,000 $60,000 $40,000 $34294 (40000 / 1.08 ^2 ) 2012 -$20,000 $80,000 $60,000 $47630 (60000 / 1.08 ^3 ) Total $20,000 $442
  • 12. Excel is your friend
    • Built in Net Present Value function
    • = -100,000 + NPV(0.08,20000,40000,60000)
    • = $442
  • 13. NET PRESENT VALUE
    • Using Excel to determine the effect of discount rates on Net Present Value
  • 14. Internal Rate of Return
    • IRR is the discount rate that results in a NPV of zero
    • “ Break even” discount rate
  • 15. The 5 step SharePoint decision model
    • Define the problem to be solved
      • Ensure all participants have a common understanding
    • Determine project critical success factors
      • How do we know that we have succeeded?
      • What events are we averting or reducing?
    • Determine metrics for critical success factors
      • How do we measure the critical success factors?
      • How much have we improved?
    • Estimate costs of the implementation
      • SharePoint has many hidden costs – invest time here
    • Create cash flows and determine NPV and IRR
  • 16. I’m too uncertain to estimate…
  • 17. I’m too uncertain to estimate…
    • We implement new tools and systems to make a positive difference
      • Otherwise why bother?
    • Ask yourself what the ‘difference’ actually looks like
      • This is where you will find your metrics
      • Saved time, reduced cost, less problems, repeat business, etc
    • It is not about finding the *exact* value
      • Vaguely right is better than precisely wrong
      • Find a lower and upper range that you feel confident about
      • The range of possibilities can be modelled
  • 18. Tips for estimating SharePoint costs
    • Licensing and server hardware is only the beginning
    • Learn from the mistakes of others
      • Seek outside advice
      • Attend “best practice” conferences! :-)
    • Experience counts!
      • Less SharePoint experience = more risk/cost
      • More stakeholders = more risk/cost
      • Account for your previous project success rates
    • Leverage existing materials
      • The Microsoft governance checklist guide
      • The Microsoft SharePoint sample project plan
  • 19. SharePoint Governance Checklist Guide
      • Good starting point
        • Lack of Governance = cost
      • Logical grouping of topics
        • Information Architecture and Taxonomy
        • Development and Configuration
        • Testing and Provisioning
        • Project Management
        • Education and Training
        • Operational Management
  • 20. SharePoint ROI Scenario - PMIS
    • Mid sized organisation – 1000 staff
    • SharePoint already running the intranet
    • Drivers
      • Not meeting project delivery targets
      • Missing critical project interdependencies
      • Inconsistent PM methodology
      • Technology to support a new Program Management Office initiative
    • Solution: Project Management Information System
      • Project Portals, PMO Portal, Client Extranet
  • 21. PMIS Critical Success Factors
    • List Items
    SharePoint Components Events Averted or Reduced Costs Averted Site definitions Custom web parts Tuned Search Document Libraries Records Management KPI Lists Workflow Reporting Services Forms Server Custom Authentication Multiple versions of the truth Duplication of effort Untracked project interdependencies Untracked project risks and changes Repeating previous mistakes Client dissatisfaction
    • Project time blowouts
    • Productivity losses
    • Rework
    • Loss of human capital
    • Management distraction
    • Contract/legal liability
    • Loss of repeat business
  • 22. PMIS Key Metrics
    • % of successful projects
      • Projects closed on time/budget
      • Current: 47%
      • Goal: 75% in 3 years
    • Average cost overrun % for unsuccessful projects
      • Current: 35%
      • Goal: 15% in 3 years
    • “ A penny saved is a penny earned” - Benjamin Franklin
  • 23. SHAREPOINT PMIS ROI
    • Using Excel to perform ROI analysis on the viability of a SharePoint Project Management Information System
  • 24. Garbage in Garbage Out
    • Like all tools, DCF is subject to abuse
      • Everything depends on cash flow estimates and choice of discount rate
    • Criticisms of DCF as a method
      • Projecting future cash flows is harder, further into the future
      • One unexpected event can make the entire model obsolete
    • More advanced alternatives are available to address DCF weaknesses
      • Real Options Analysis (ROA)
      • Monte Carlo Simulations
  • 25. Going further - Microsoft REJ
    • Rapid Economic Justification
    • “ Microsoft® REJ™ is an assessment and measurement framework that helps organizations quantify the financial benefits of IT solutions”
    • Multi-disciplinary approach to ROI
      • Business Assessment
      • Solution Definition
      • Benefit-Cost Analysis
      • Risk Analysis
      • Financial Metrics Calculations
    • Creates more comprehensive and sophisticated models
      • Advocates both real options theory and monte carlo
      • More complete financial metrics
      • Requires a longer investment
  • 26. More Information
    • Blog: www.cleverworkarounds.com
      • 5 part “Learn to speak to your CFO” series
    • Book: “SharePoint for Project Management” by Dux Raymond Sy
      • Practical advice on setting up a low cost PMIS
    • Book: “How to Measure Anything” by Douglas W Hubbard
      • Finding the value of intangibles in business
    • Microsoft Resources
      • SharePoint Governance Checklist Guide ( http://tinyurl.com/6m8gy8 )
      • Sample SharePoint Project Management Plan ( http://tinyurl.com/6pw6z8 )
      • Microsoft REJ Site ( http://www.microsoft.com/business/enterprise/value.mspx )
    • Aswarth Damadoran
      • Site devoted to valuation techniques with downloadable spreadsheets
      • http://pages.stern.nyu.edu/~adamodar/
  • 27. Thank you for attending!
    • Post conference DVD with all slide decks
    Sponsored by