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Farrokh Alemi, Ph.D.
Importance of Return on Investments
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Importance of Return on Investments
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Importance of Return on Investments
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The problem is with our methods
Morgan Stanley:“US firms lost
$130 billionin unwanted IT systems”
List of Costs & Savings
Underestimates affected business processes
Assumes IT increases revenue Assumes unused buildings have no
costs Training & maintenance costs
ignored Impact on productivity and quality
ignored
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Proposed Analysis
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Clear relation in scatter diagram Large pair wise correlation
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Clear relation in scatter diagram Large pair wise correlation
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
13
Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Clear relation in scatter diagram Large pair wise correlation
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
14
Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Clear relation in scatter diagram Large pair wise correlation
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
16
Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
17
Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
22
Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
Calculate ROI
23
Steps in Proposed Analysis1. Gather data over at least 3 periods
Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues
2. Examine association between IT cost, use and revenue
Often positive and significant
3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue
4. Calculate ROI
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Investment In DoIT
5,000,000
5,200,000
5,400,000
5,600,000
5,800,000
6,000,000
6,200,000
Year 1999-2000 Year 2000-2001 Year 2001-2002
Bu
dg
et
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Numerous units were merged into DoIT in this time period. DoIT organization defined based on 2002 operation and budget reconstructed.
IT Investment & University Revenue
$170,000,000
$175,000,000
$180,000,000
$185,000,000
$190,000,000
$195,000,000
5,000,000 5,500,000 6,000,000 6,500,000
DoIT Investment
Un
ive
rsit
y E
& G
Re
ve
nu
e
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Example: Evaluation of DoIT
The Division of Instructional & Technology Support Services includes: Audio Visual Services Academic Computing Labs, Electronic Classrooms, GMU-TV, Instructional Resource
Center, Johnson Center Technology Student Technology
Assistance Resource Center.
A key service provided by DoIT is the WebCT course delivery system
Time Frame
Web-CTCourses
WebSeats
1999-2000 120 6,128
2000-2001 229 7,895
2001-2002 434 9,627
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Possible Sequence of Events
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Possible Sequence of Events
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Possible Sequence of Events
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Correlations
IT investmentWeb-CT
SeatsUniversity Revenue
IT Investment 1
Web-CT Seats 0.943 1
University revenue 0.999 0.942 1
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Possible Sequence of Events
Cause CatalystEnd
resultCondition to
be metCalculated
value
IT Investment
Use of Web-CT
University Revenue
ρIR- ρIU ρUR
=0=.99-.94*.94
= .11
University Revenue
IT Investment
Use of Web-CT
ρRU- ρRI ρIU
=0=.94-.94*.99
=.00
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Conclusion of Analysis
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Objective Analysis of ROI