What is IT investment?An organizational investment employing orproducing IT or IT-related assets. Eachinvestment has or will incur costs for theinvestment, has expected or realized benefitsarising from the investment, has a schedule ofproject activities and deadlines, and has or willincur risks associated with engaging in theinvestment.
Why to do IT investment?• Managing the deployment of Information Technology and Systems.• biggest driver of productivity• performed better• ITS is associated with a measurable improvement in the financial performance of the organization.
Financial Measures Aren’t Enough• There are too many to choose from.• They imply a precision that doesn’t exist.• They often fail to account for intangible benefits• They don’t account for future opportunities• They fail to incorporate risk
The IT value imperative Value Customer satisfactionSenior executives ask: Business managers ask:―What is the return we are ―Why can’t you run IT like agetting from our investment business (and focus on me,in IT?‖ your customer)?‖ The CIO asks: ―How can IT meet the growing needs of its customers (business units), given the constraints placed on its resources?‖ COST
Approaches to manage1.Business Value Index (BVI)2. Total Economic Impact™ (TEI)3. Val IT4. Applied Information Economics (AIE)
Val IT• IT Governance Institute (ITGI), originators of COBIT framework released Val IT as the measurement of IT value• Measure, monitor and optimize the realization of business value from IT investment• Focuses on new IT investment
Three key process• Value governance optimizes the value of IT investments.• Portfolio management ensures that the overall portfolio is optimized• Investment management optimizes individual IT investment programs
Business Value Index(BVI)• Intel IT developed the BVI methodology in 2001.• Straight forward methodology for valuing IT investments and measuring business value• Business value measures both tangible and intangible benefits• IT efficiency measures its impact on the IT organization.• Financial criteria measure financial attractiveness.• Scores enable visual comparison of projects.
BVI Considerations• Developed by Practitioners• Has Long history• Well documented and easily available• But you are on your own for deployment
Total Economic Impact(TEI)• Forrester’s methodology for valuing IT investments.• Fits between the simpler and more qualitative BVI methodology and the more complex and highly quantitative AIE.It add more to BVI:• for quantifying risk• the value of flexibility.
TEI methodology embraces• traditional cost analysis and a best practice approach to minimizing costs• extends it by explicitly incorporating analysis• quantification of both business benefits and flexibilityTempering these three categories with an analysis of the risk effects
TEI Includes• Costs — the impact on IT• Beneﬁts — impact on the business• Flexibility — future option• Risk• TEI Considerations are; – TEI requires a commitment – TEI helps build a history of beneﬁt quantiﬁcation
Applied Information Economics(AIE)• Highly quantitative methodology• AIE has been in use for about 10 years to• Improve cost/beneﬁt analysis• Develop quality assurance measurements• Strategic plan development
AIE Basic Techniques And Tools• Unit of measure deﬁnitions• Systematic uncertainty analysis• The calculation of the economic value of information• IT investments as an investment portfolio
Case study• In May 2010, Google commissioned Forrester Consulting to examine the total economic impact and expected return on investment (ROI)• Risk-adjusted ROI of 307%• Risk-adjusted net present value (NPV) of $10,039,612• Payback (break-even) within seven months
• Forrester employed four fundamental elements of TEI in modeling the impact of Google Apps• Costs• Benefits to the entire organization.• Flexibility• Risk
Benefits for Google Apps Summary of findingsIT-impact benefitsEnd-user-impact benefitsEnabled-flexibility benefits Costs
Basic model assumptions that Forrester usedAdoption Assumptions - By Application
Forrester’s case studies• Showing – Google App Case – Adobe Case study, used six step approach• Client: UK Media Organization• The results:• Reduced cost by 40%• Delivered estimated 40% ROI in five year cycle• Achieved faster time to benefits• Embraced changes in scope and included new features within budget
Contd..• Client: Australian Insurance Company• The results:• Improved time to benefit by over 50%• Reduced cost by 33%• Improved ROI to 29% from a negative return on investment with alternative
Conclusion:• Methodology for managing IT investing is very important for every organization to perform better and selection of the tools depend on number of factor so organization must select tool properly as it is very clear that which tool is more powerful .• BVI is the simplest.• TEI values flexibility.• Val IT takes a governance approach.• AIE offers the greatest rigor.• Consistency, Credibility, And Accountability are Key