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Steve Calder: Business Benefits of GIS: An ROI Approach

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Steve Calder: Business Benefits of GIS: An ROI Approach

  1. 1. Business Benefits of GIS: An ROI Approach Steve Calder PA Consulting
  2. 2. The objectives of today’s presentation are… <ul><li>To help you communicate the business case for Geospatial-related (data/technology) investment using ROI-based ‘value’ methods </li></ul><ul><li>To practically describe ‘how to’ build the ROI-based Strategy/Business Case, not just tell you why it’s important </li></ul>www.esri.com/roi
  3. 3. Customer viewpoint - What are some of the issues or challenges commonly faced when seeking to realise value from geospatial technology? <ul><ul><li>Compete to secure an appropriate share of IT-related budget </li></ul></ul><ul><ul><li>Prove the real-value (ROI) of a GIS-related investment </li></ul></ul><ul><ul><li>Prioritise GIS-related investments based on the value delivered to an organisation </li></ul></ul><ul><ul><li>Deliver a growing portfolio of complex GIS enabled initiatives </li></ul></ul><ul><ul><li>Build consensus to allow ‘enterprise’ opportunities to emerge </li></ul></ul><ul><ul><li>Deliver successfully on expected business benefits, not just project milestones </li></ul></ul>Time Sophistication ROI GIS technology
  4. 4. What’s the big deal about ROI? <ul><li>ROI can be defined many ways </li></ul><ul><ul><li>We use ROI as a generic term to indicate that a given investment will have a positive return to the organisation </li></ul></ul><ul><ul><li>It can be described in many forms </li></ul></ul><ul><ul><ul><li>ROI % return </li></ul></ul></ul><ul><ul><ul><li>Net Present Value (NPV) </li></ul></ul></ul><ul><ul><ul><li>Impact to operating free cash flow </li></ul></ul></ul><ul><ul><ul><li>Impact to Profit & Loss </li></ul></ul></ul><ul><ul><ul><li>Internal Rate of Return (IRR) </li></ul></ul></ul><ul><li>In our experience, ROI (however defined) alone doesn’t secure funding </li></ul><ul><li>The key is to build consensus and commitment across the organisation, and to structure a program of work that will deliver tangible value that everyone believes in </li></ul>
  5. 5. Key questions increasingly asked by budget holders (applied to new or on-going mature GIS implementations) <ul><li>Why invest, or re-invest, in a particular GIS capability / solution? </li></ul><ul><li>How much investment is needed? </li></ul><ul><li>When will the benefits be delivered? </li></ul><ul><li>Who is going to deliver these benefits and what resources are required </li></ul><ul><li>What is the financial case? </li></ul>How will it impact revenue growth, assurance & protection; cost reduction; service excellence; regulatory compliance, health & safety or shareholder value? What is the initial capital expenditure required, and on-going cost of ownership? When will the business realise these benefits? (Not to be confused with project milestones!) What resources are required to realise the benefits? What type of delivery organisation is required during implementation and post-implementation in order to sustain it? How does the project prove itself financially – that is, what is the return on this investment (using NPV, IRR etc)? If you can’t answer these questions for your customer, then how can they answer them for the Executive Budget holder?
  6. 6. So what is the ‘ROI-driven approach’ that helps answer the 5 key questions? <ul><li>It is an end-to-end approach that is repeatable and supported by a set of templates and toolkits (although it’s iterative, not linear!) </li></ul><ul><li>It is a highly participative approach that builds consensus and commitment at all levels of the organisation </li></ul><ul><li>It is part strategy planning and part quantified business case </li></ul><ul><li>It is a pragmatic, step by step process that is repeatable and fully codified </li></ul><ul><li>It incorporates a significant body of knowledge pertaining to business strategy, complex program planning, sourcing, organisational design and financial analysis </li></ul>
  7. 7. Our observations of typical GIS initiatives… <ul><li>A Typical initiative… </li></ul><ul><li>… is technology-led </li></ul><ul><li>… is technology-driven </li></ul><ul><li>… seeks to deliver against project milestones </li></ul><ul><li>… is focused on delivering applications and functionality </li></ul><ul><li>… has limited or short-lived buy-in from stakeholders </li></ul><ul><li>… seeks to sell GIS through demonstration of technology </li></ul><ul><li>… is not linked explicitly to organisational strategic objectives </li></ul><ul><li>… cannot measure success based on value delivered </li></ul><ul><li>A Successful initiative… </li></ul><ul><li>… is business-led </li></ul><ul><li>… is benefits-driven </li></ul><ul><li>… seeks to deliver measurable value to stakeholders </li></ul><ul><li>… is focused on delivering business capability </li></ul><ul><li>… has long-term stakeholder commitment to success </li></ul><ul><li>… builds consensus & commitment by demonstrating opportunities to realise value </li></ul><ul><li>… is explicitly linked to organisational strategic objectives </li></ul><ul><li>… can measure success based on value delivered….the return on investment… </li></ul>
  8. 8. Overview of the Approach Construct GIS Program Calculate Costs Estimate Benefits Financial Calculations Define Project Control Prepare for the ROI Project Build & Present Report 2 1 3 5 4 6 7 10 9 Identify Business Opportunity Prioritise Business Opportunities 8 Benefits Roadmap Develop Quantitative Business Case Toolkits used: Budget Model Template, Benefits Modeling Toolkit, Financial Analysis Toolkit (NPV, IRR, ROI) Develop Strategy Toolkits used: Interview Templates Business Opportunities, Prioritisation Model Program Planning Pyramid Overview of the Methodology…
  9. 9. Step 1 : Prepare for the ROI Project Construct GIS Program Calculate Costs Estimate Benefits Financial Calculations Define Project Control Build & Present Report 2 1 3 5 4 6 7 10 9 Identify Business Opportunity Prioritise Business Opportunities 8 Benefits Roadmap Prepare for the ROI Project
  10. 10. Step 1: Prepare for the ROI Project <ul><li>Treat the ROI study as a project </li></ul><ul><ul><li>It has a defined group of stakeholders who will contribute </li></ul></ul><ul><ul><li>It has a project plan with start, end dates and well defined activities </li></ul></ul><ul><ul><li>It has active stakeholder management </li></ul></ul><ul><ul><li>It has deliverables </li></ul></ul><ul><li>Define your ROI Project Plan </li></ul><ul><li>Build SWOT Analysis of your existing GIS implementation or past attempts. </li></ul><ul><li>The rule here is “ Plan and be prepared ” </li></ul>
  11. 11. Step 2: Identify Business Opportunities <ul><li>Identify business opportunities for GIS by speaking to your Executives </li></ul><ul><ul><li>Objective is to link GIS opportunities to organisational strategy & objectives </li></ul></ul><ul><li>Utilise structured interview techniques and scripts </li></ul><ul><li>The focus is on what they see as opportunities or problem areas in their organisation </li></ul><ul><li>Take the opportunity to engage with them and educate them, but don’t ‘sell GIS’ to them </li></ul>Interview Template
  12. 12. Step 3: Prioritise Business Opportunities (1) <ul><li>Use the information gathered from your Executives during interviews </li></ul><ul><ul><li>And any follow-up meetings with their direct reports </li></ul></ul><ul><li>Collate it together in the Template </li></ul><ul><li>Flesh out the opportunities identified by adding business context for each opportunity </li></ul><ul><li>Also identify metrics that relate to each opportunity </li></ul><ul><li>Avoid politically sensitive benefits e.g. cost reduction via headcount </li></ul>Interview Notes Benefits Template
  13. 13. Step 3: Prioritise Business Opportunities <ul><li>Use the template to help prioritise the benefits identified based on </li></ul><ul><ul><li>Value to the organisation </li></ul></ul><ul><ul><li>Ease of Implementation (delivery) </li></ul></ul><ul><li>At this stage “value’ is subjective, but is guided by Executives </li></ul><ul><li>The template will generate a quadrant diagram </li></ul><ul><li>Focus on the benefits falling in the top right quadrant </li></ul>Quadrant Diagram
  14. 14. Step 4: Construct the GIS Program <ul><li>Practically determine what will need to be done to deliver the benefits </li></ul><ul><li>Keep the BIG PICTURE (Enterprise view) </li></ul><ul><li>Distill the Program into component parts (hardware, software, data, etc) </li></ul><ul><li>Seek to combine ‘like projects’ together and not 1:1 to benefits </li></ul><ul><ul><li>Take an enterprise view, not application view </li></ul></ul><ul><ul><li>Don’t get tripped up by budget allocations and models (yet) </li></ul></ul><ul><li>Be pragmatic </li></ul>Program Pyramid Discrete Projects
  15. 15. Step 5: Define Project Control Construct GIS Program Calculate Costs Estimate Benefits Financial Calculations Define Project Control Build & Present Report 2 1 3 5 4 6 7 10 9 Prioritise Business Opportunities 8 Benefits Roadmap Prepare for the ROI Project Identify Business Opportunities
  16. 16. Step 5: Define Program Control <ul><li>Lack of governance is a leading cause of program failure </li></ul><ul><li>Ensure your clients have adequate controls in place to be successful </li></ul><ul><li>Use the Project Governance Capability Maturity Model (CMM) to understand team readiness </li></ul><ul><ul><li>Exposes strengths and weaknesses </li></ul></ul><ul><li>Shore up any weak spots and be realistic </li></ul><ul><li>Help define their GIS delivery team structure (in-house vs external) </li></ul><ul><li>Consider post-delivery operational requirements </li></ul>
  17. 17. Step 6: Calculate Costs Construct GIS Program Calculate Costs Estimate Benefits Financial Calculations Define Project Control Build & Present Report 2 1 3 5 4 6 7 10 9 Prioritise Business Opportunities 8 Benefits Roadmap Prepare for the ROI Project Identify Business Opportunities
  18. 18. Step 6: Specify & Cost GIS Program <ul><li>Understanding key concepts </li></ul><ul><ul><li>Capital v. Operational expenditure </li></ul></ul><ul><ul><li>Depreciation </li></ul></ul><ul><ul><li>Internal Capitalisation of Labour </li></ul></ul><ul><ul><li>Cash flow implications </li></ul></ul><ul><ul><li>Sign-off limits </li></ul></ul><ul><ul><li>Procurement rules/preferences </li></ul></ul><ul><li>Output used to populate the “cost” side of the ROI calculation </li></ul><ul><li>Dashboards are automatically generated to provide a full 3 year view </li></ul>3-Year Capex & Opex Budget
  19. 19. Step 7: Calculate the Benefits <ul><li>Quantify the business benefits in tangible terms </li></ul><ul><li>One of the most challenging aspects of any ROI calculation </li></ul><ul><li>Requires you to model the impacts of GIS as an enabling technology on workflow (base case vs GIS case) </li></ul><ul><li>Key concepts: </li></ul><ul><ul><li>Value Driver Tree concept (benefits that enable other benefits) </li></ul></ul><ul><ul><li>Expert witness – getting to the numbers </li></ul></ul><ul><ul><li>Sensitivity Analysis </li></ul></ul><ul><ul><li>Benefits Realisation Curve </li></ul></ul>Realisation Modeling Clear Benefit Definition Benefit Summary Year on Year Value Calculations Fixed, Variable, & Derived Inputs Sensitivity Analysis
  20. 20. Step 8: Create the Benefits Roadmap <ul><li>Illustrates the program activity on a quarterly basis </li></ul><ul><li>Focuses on benefit delivered , not project milestones </li></ul><ul><li>Provides a clear ‘roadmap’ for the program </li></ul><ul><li>Built from the discrete project’s defined in Step 4 </li></ul><ul><li>Must be realistic, achievable and have broad commitment from the business to succeed </li></ul>Project C Project B Project A Project D Project E Project F Q1 Q2 Q3 Q4 Q1/09 Quick wins “ Value drops” for the business “ Value drops” for the business “ Value drops” for the business
  21. 21. Step 9: Calculate the Financial Metrics <ul><li>Team with your finance department </li></ul><ul><li>Use budget (cost) and benefits calculated in earlier steps to calculate ROI, NPV, IRR etc </li></ul><ul><li>Template provides ‘fill in the blank’ entry and automatically calculates financial metrics </li></ul><ul><li>Template also provides guidance on interpreting the results e.g. ‘creates value’ or ‘destroys value’ </li></ul><ul><li>Not just about a positive NPV, it is about successfully delivering on the promised benefit! </li></ul>Budget (cost) from Step 6 Quantified Benefits from Step 7 / = NPV, IRR, MCFCFS, ROI, Payback
  22. 22. Step 10: Build and Present final Report Construct GIS Program Calculate Costs Estimate Benefits Financial Calculations Define Project Control Build & Present Report 2 1 3 5 4 6 7 10 9 Prioritise Business Opportunities 8 Benefits Roadmap Prepare for the ROI Project Identify Business Opportunities
  23. 23. Key benefits for your client’s organisation <ul><ul><li>Avoid a siloed approach to GIS </li></ul></ul><ul><ul><li>Leverage existing investment in GIS technology, data or processes more fully to benefit your organisation </li></ul></ul><ul><ul><li>Establish strong stakeholder buy-in, commitment and understanding </li></ul></ul><ul><ul><li>Validate and refine the work already completed for existing GIS implementations </li></ul></ul><ul><ul><li>Build mutual agreement between senior business leaders of the potential opportunities for leveraging GIS </li></ul></ul><ul><ul><li>Set up a common understanding and prioritisation, based on fact-based, benefits-focused metrics, of the business benefits </li></ul></ul><ul><ul><li>Formulate a defensible budget forecast and achievable roadmap for your Enterprise GIS Program </li></ul></ul><ul><ul><li>And….obtain career advancement! – make your customer a hero </li></ul></ul>

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