Due to economic conditions, CIO budgets are under pressure to justify spending. IT spending in the US has dropped 26% in the last 24 months. Best practices now include developing rigorous ROI and cost analysis for IT projects and focusing on infrastructure, integration and business intelligence to realize ROI, rather than speculative claims from vendors. CIO priorities have shifted to cost cutting with an emphasis on continuity planning, security and critical systems over speculative new projects.

1. While CIO’s are Bracing for Further Economic Impact; ROI is Back… Lou Marcoccio Consultant & Advisor Copyright 2001 Marcoccio Consulting

2. Lou Marcoccio formerly of GartnerGroup Consultant – IT, Web/Internet, Application Development, Business Optimization, Business Analytics, Investment Analysis, IT Management, and Business Continuity Head of Market and Business Research – Consortia & Research Groups Advise Companies, Governments, Vendors, & Investors Testify to U.S. Congress, Governments, & Commissions Research & Monitor Best Practices and Trends Worldwide Appear on ABC News, CBS News, CNN, Wall St Journal Report, Today Show, Wall St Journal, London Times, N.Y. Times, and USA Today Author, “Internet Hype-Cycle Madness”, “Developing Software in 2010”, and “Succeeding as CIO in a Downturn Economy” Chair Several Software & CIO Best Practices Committees Background – Gartner Analyst, IT Management Advisor, IT and Management Consultant, Business Intelligence, eCommerce, Web/Internet, CRM, Application & Data Integration, Software Development Practices, Software Market Strategies, Systems Integration, and Offshore Outsourcing Strategies While CIO’s are Bracing for Further Economic Impact; ROI is Back… IT Trends Driving Renewed Focus on ROI Measuring ROI email: [email_address] Phone: 508-366-9880

3. Information Sources University Research Consortia – surveying (8,000) Joint research with Esterline Marketing – surveying (400) Global 200 Best Practice Consortia (73) U.S. CIO Best Practices Consortia (187) Enterprise Transformation Group (62) Client companies

4. 2001 – IT Trends Results of Survey – 8,000 Companies, 27 Industries IT Spending + 3% - 18% Profitability Pressures + 8% + 14% Number of IT Specializations Req’d + 11% + 19% Need for Offshore Outsourcing + 9% + 14% Number of IT Resources Required + 9% + 2% Software Quality + 1% + 2% Vendor Contract Management + 7% + 1% ROI Used to Justify IT Projects + 9% + 23% Rate of Business Changes + 8% + 8% US – People to Fill IT Jobs - 14% - 6% March October 2001

5. Trends – U.S. IT Spending as a Percent of Revenue IT, incl. Web/Internet Mainframe Client/ Server Web/ Internet 1960 1970 1980 1990 2000 2010 1960 1970 1980 1990 2000 2010 IT Capital Spending Y2K 10% 5 0 75% 50 25 0

6. Q199 Q299 Q399 Q499 Q100 Q200 Q300 Q400 Q101 Q201 Q301 Q401 Q102 0 10% 5% $300B $250B $200B IT Spending – U.S. IT Spending as % of Revenue – U.S. Re-evaluate Projects Year 2000 Hype and Spending for Risk Avoidance eBusiness Hype and Spending for Marketbreaker Defense: 4-8 Q Payback Projects Require 1-3 Q Payback Feds and inflated economy reduce confidence in eBusiness/eCommerce and new business models Using Basic ROI Measurements 11% 27% $227B $307B ($80B Drop – 26%) Trends – U.S. IT Spending

7. Trends – Q401 U.S. CIO Strategy & Goals Keep systems and infrastructure at high-availability Develop/implement contingency plans, business continuity plans, and disaster recovery plans and strategies Increase priority on security systems, solutions, and strategies Focus limited projects on shorter-term ROI benefits: 1-3 quarters Significantly reduce expenses and reduce budget/spending by x % Consider capital spending on hold Get limited projects completed faster to aid business and keep spending down, since budgets will continue to decrease through ‘02 Outsource for lower cost labor where possible Capitalize on labor market for just a few specialized resources Priorities Restructuring, Justifications, and Cost Reductions Disaster Recovery & Contingency Planning High Availability Security Mission Critical Applications Support & Maintenance CRM, Business Intelligence, Web Services

8. Trends – Changing Face of IT: Expanding Specialties Required Mainframe Client/Server “ C” ERP/MRP PC Database Support Mainframe Client/Server C++/Objects ERP/CRM Data Warehouse PC Database Support Integration Mail Y2K UNIX/Win/NT Mainframe Client/Server C++/JAVA/JSP/ASP ERP/CRM/BI PC Security eCommerce Intranet/Internet Web App Servers Web Apps/EJB Database/Data Integration/EDI/XML Storage Analytics Content Mgmt Personalization Business Objects WAPs Mail UNIX/NT/MF/Others 1990/1993 1995/1998 2000/2003 Time IT Specialties

9. Measuring IT ROI In times of major economic declines, reduced company revenues, reduced investor confidence, and added business continuity risks, IT cost analysis and ROI become essential to investors, BOD’s, and prudent management. Best Practices: Define and implement an IT Cost of Ownership and ROI process Create and maintain an IT Cost of Ownership strategy for each IT function Have key IT vendors and outsource companies participate in analysis Cost vs. Benefit Conservative vs. Optimistic

10. Measuring IT ROI Build ROI Measurement Data for Each IT Focus Area Infrastructure Desktop Data Center Help Desk Applications Development Appl Support & Maint Security Voice Telecom Operations Audit Customer Satisfaction Internet Services Content Management Data Integration Appl Integration Research/Adv Technology Business Intelligence and Analytics Client Partners Solution Deployments

11. Measuring IT ROI Cost of Ownership General Method Analytical Method Perceived Value Full life cycle costs are defined and monitored Cost of Ownership defined for each IT key function area Includes monitoring, analysis, and strategy revision Direct and indirect cost estimates can more accurately be made quickly Swags and guestemates Most are not analyzed, confirmed, or measured Example, “in general, sales revenue will increase 40%” More than 2000 investment analysis tools available Typically requires systems, business, and/or finance analysts to create and maintain data & assumptions Focus is on financial analysis of direct and indirect benefits and costs. Typically assumed by executive management Solution sold to executive level and mandated without any formal analysis or justification Value is assumed due to expected new features, processes, control, reporting, or business rules Cost vs. Benefit Conservative vs. Optimistic

12. Example - CRM ROI Financial Metrics Cost of Ownership + Analysis Method Revenue Growth Profit Margin Market Share Cash Flow Volume Liquidity Selection Acquisition Retention Extension Market segmentation Lead management Order management Customer business analysis Campaign planning Needs assessment Installation Needs assessment Brand/account planning Sales cycle mgmt Inquiry handling Upsell/cross-sell New product launch Proposal generation Problem resolution Campaign mgmt Closing the deal Number of new customers Cost per lead Involuntary attrition rate/cost Ave increase in order size Revenue per new customer Quote-to-close time Voluntary defection rate Cross selling rate/customer Average acquisition cost Pipeline volume calls/day Lifetime value of customer Upselling rate/customer Response rate Calls/day Transaction errors/agent Revenue/sales person Average order size Number of deals Cost of sales call Cost of interaction Customer Loyalty & Satisfaction CRM Customer Life Cycle Enterprise Domain Source: GartnerGroup

13. ROI Opportunities: Real or Elusive 1985 1990 1995 2000 2005 Client/Server eProcurement SCM ERP Front End Intranet eCommerce Content Mgmt Online Ads ERP Integration Legacy Extensions Rebuilding Infrastructure Systems & Processes Self-Service Leveraging Existing Data Business Intelligence Analytics & Event Management Outsourcing Web/Internet CRM Business Intelligence Analytics Self Service Claimed to be low hanging fruit: Real payback: PC’s Mainframe

14. ROI Benefits - Example One Face for All Products & Services Customers Little Change to Infrastructure & Processes Outside of Web Presence, Independent Apps, & Few Transactions Limited or No Integrated with Infrastructure Business Intelligence $ A B Community One Company, One Infrastructure Sales Contracting Sales Targeting Sales Negotiating Transactions Customer Satisfaction Business Intelligence Personalization Self-Service Commerce Intelligence Community Interests Intelligent Service Monitor Satisfaction Measurements Staffing/Planning ROI Analysis Analytics, Integration, Decision Support Legacy Infrastructure and Processes

15. Summary Due to economic conditions, CIO budgets are under tremendous justification pressure IT spending is down 26% from 24 months ago CIO priorities have been significantly changed during the past 6-8 months Best Practice Enterprises are building ROI and Cost of Ownership measurements into routine planning and project management Be aware of the 4 basic types of ROI justification – focus on analysis and Cost of Ownership and keep away from guessing When possible, obtain help or expertise in developing ROI analysis; typically 2-5% of project cost Be skeptical when vendors claim ROI low hanging fruit During past 6 months, best practice companies have shown highest degree of ROI payback has been experienced by focusing on infrastructure, integration, and business intelligence Questions email: [email_address] phone: 508-366-9880