Calculating RoI on IT Projects - An Inescapable Reality

4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India
Calculating RoI on IT Projects-
An Inescapable Reality
Gp Capt (Dr) Sanjeev Sood
MBBS,MD,PGDHHM,M Phil(HHSM),AFeISAM,FCGP
Hospital Administrator &
NABH Empanelled Assessor
Gurgaon
doc_ssood@yahoo.com

Why calculate RoI ?
Aim-
Value realization
Techno-economic appraisal
To convince leadership
To understand the potential impact on cost and
revenue generation
To facilitates investment prioritization by making
a project-to-project comparison between
investment options
CIO walking tight rope

Challenges in Technology Appraisal & Deployment
Capital Intensive
Successful outcome may be difficult to ascertain
Interoperability & lack of qualified staff for IT adoption
Viewed as a cost overhead rather as an enabler &
differentiator that can transform their operations &
overall productivity.

Proposal by CIOs on IT projects, such as
implementation of HMIS/EMRs/PACS met with
skepticism
A barrage of questions posed by mgt that needs cost
justification, critical valuations, RoI, DCFs, IRR & pay-back
period etc.
CIOs on defensive.
Challenges in Technology Appraisal & Deployment-2
CIO harassed by the queries on
RoI, DCF,IRR,NPV

Economic Appraisal of IT Projects
Needs systemic analytic
approach applying
knowledge spanning
multiple disciplines
Thus, calculating RoI
for CIOs may be an
inescapable reality
which they have to face
in this era of fiscal
accountability
PM
Healthc
are IT
Finance
Cost
accountan
cy

Usingthe Simple Paradigm
IT projects - long gestation period & payback
should be looked at only after 3 - 5 years
Intangible benefits such as, improving healthcare
quality, efficiency & accessibility, & are difficult to
assign any monetary value
Certain benefits of IT adoption -coordinated &
efficient care ,extend & span beyond the Org units
due to integrated delivery systems- eg data analytics

Technology Cost/Impact Decision Matrix
Cost
Impact
Improve No change Worsen
Increase 1. ?? 2.Never 3.Never
No change 4.Always 5. ?? 6.Never
Decrease 7.Always 8.Always 9. ??

Economic Appraisal Techniques
Cost-benefit analysis-
This technique is used to evaluate, systematically, multiple
objectives & actions that are not mutually exclusive & is
applied, when all aspects of cost & benefit of the selected
technology can be assigned a monetary value.
The outcome of this analysis is presented in Rs terms that enable
decision makers to decide in favor of alternative that has the lowest
cost & highest benefit.
Today, the IT architects such as cloud
computing, virtualization, mobile technologies & SOA do exactly
that, giving maximum value for money.

Cost-effectiveness –
Used to evaluate multiple ways (usually mutually exclusive
alternatives) of reaching a single objective e.g., to buy HMIS off the
shelf or develop & customize one’s own .
For many health IT applications, it may not be feasible to measure
the benefits or outcome in financial terms e.g., loss of life or limb
cannot be precisely assessed ;benefits of the shortened ALOS may
not be possible to assess considering more no of pts that will be
treated on the same no of hosp beds .
In this case, one might estimate the cost associated with
extending life for addl yr or cost of hospitalization/day .The decision
makers may adopt the technology with lowest cost per life year
saved or hospital day reduced of treatment.
Economic Appraisal Techniques-2

Cost-utility analysis-
Measures interventions effect on both the
quantitative & qualitative aspects of HC, like
measuring the quality of life extended by
using tools like QALYs e.g., the extended yr
spent in leading a healthy life rather than
suffering in a hosp.
Economic Appraisal Techniques-3

Steps in Economic Analysis-A 10 step approach
5.Analyze Benefit-direct/indirect,short/long term
4.Analyze costs- TCO;direct & indirect costs
3.Develop an analytic framework for cost/benefits: convert intangible
benefits to tangible factors
2.Identify alternatives
1.Define problem & identify the objectives-what the Org desires ?

Steps in Economic Analysis (Contd)
10.Discuss resurts in terms of validity & re-evaluate decisions-continuous
monitoring
9.Ethical issues-Who receives these benefits?
8.Deal with Uncertainty-Sensitivity analysis
7. Perform discounting & amortization
6.Differentiate perspective of analysis-payor,provider & patient

ROI = (PV OF EXPECTED BENEFITS / PV OF EXPECTED COST) * 100
3.Develop an analytic framework for cost/benefits
convert intangible benefits
to tangible factors
Competitive
Advantage,Patient Safety
Steps in Economic Analysis-3

Factors affecting ROI
Since ROI may not factor in all risk or intangible rewards, it is prudent to list some
of those risks and intangibles that may impact an IT project
Lack of resources—Developers or testers may not be available or may not have
the proper skill sets, requiring additional funding from the company.
Dissatisfied client—The client or users may be dissatisfied with the IT solution
you delivered and reject it until it’s corrected. You may need to add code, burning
up more time, testing, and money. Or, the solution may not be compatible with
current or future operating systems, platforms, or other applications.
Unsatisfactory executive commitment—The executive team may not be fully
committed to the project (e.g., dissatisfaction with the proposed project budget).
Vendor delays—Sometimes, vendors may be unable to deliver hardware or
software when you need it, impacting your release date and potential revenue.

Summing Up
ROI < 100 % should not be undertaken unless there
are compelling reasons to do so & strong executive
sponsorship for the project
Accurate IT valuation may not be easy to ascertain
or ensure failure of an IT project may have several
causes
And root cause may lie in people & not technology
per se-selecting technology for inappropriate reasons
Accurate technology appraisal & its value realization
is a complex, data intensive & challenging process that
demands diverse skills & time by the CIO

Summing Up-2
Armed with above knowledge & the given
analytic framework, the CIO is better equipped
to put up a strong business case & convincing
argument for IT investments
Supported by a mature & visionary
leadership, he can have a smooth sailing in
achieving an IT empowered organization as a
benefit, & also empowered patients as a bonus!

Dr Sanjeev Sood
Hospital Administrator
Gurgaon
doc_ssood@yahoo.com

Calculating RoI on IT Projects - An Inescapable Reality

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