Calculating RoI on IT Projects - An Inescapable Reality

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Calculating RoI on IT Projects - An Inescapable Reality

  1. 1. 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
  2. 2. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  3. 3. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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.
  4. 4. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  5. 5. 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
  6. 6. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  7. 7. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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. ??
  8. 8. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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.
  9. 9. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  10. 10. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  11. 11. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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 ?
  12. 12. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  13. 13. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  14. 14. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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.
  15. 15. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India
  16. 16. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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
  17. 17. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India 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!
  18. 18. 4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India Dr Sanjeev Sood Hospital Administrator Gurgaon doc_ssood@yahoo.com

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