Along with risk assessment (how would the business continue in the event of an IT failure) the effective use of IT investment needs to be considered.
The typical problems associated with maintaining IT systems are:
- Disruption due to computer virus infections
- Confusion and chaos when someone moves on and leaves behind a system that nobody else understands - whether it's your office network, your back-up routine, or a
collection of undocumented spreadsheets that you use internally or externally.
- Application software upgrades that demand additional investments in new databases, hardware and operating software before you can run the new program.
The basic approach is to sit down with the key players and discuss
- what they do now,
- what they perceive as being the problem areas, and
- what might be the solutions.
As with al capital projects, there should be a business case for the investment. A large part of that business case is the return on investment (ROI) any IT investment will deliver. To help determine that there is an Excel spreadsheet.
The spreadsheet creates only an estimated ROI projection; the rates it generates will not pass serious actuarial muster, so any findings shouldn't be presented in that context.
There are no provisions for most taxation issues, such as equipment depreciation, and there is an over simplified model based only on possible interest earned on held funds to determine the future value of money.
It's good enough for an educated guess, but be sure to make that disclaimer up front before you share a completed version of this spreadsheet with a client.
The following steps need to be followed in order to complete this spreadsheet.
- Make a friend in a client's accounting department
Do your homework and find somebody on the inside to help you. The ROI calculator asks for a fairly comprehensive profile of costs for both any proposal and a client's current practices, so a window is needed into the company's cash flow picture.
Many ROI estimates fail because they aren't backed up with enough research. For example, an expensive annual service contract that you didn't know about can drastically change the complexion of your presentation.
- Determine a life cycle for your proposal
ROI is a way of trying to quantify projects in the long term, so one of your key decisions is the period of time over which you want to extend your analysis. Project length typically relies on some critical completion date, like the final payment on timed purchase of equipment or maintenance contract. Don't try to stretch your project life cycle to include tangential benefits, like repurposing of owned equipment for other projects after the business you're proposing has come to term. Think of your proposal in the same terms any businessperson would; it's a business that must have an end date.
- Determine the ROI
This comprises three parts
Remember that ROI is only one metric for weighing a project's merits. In a tough economic climate, cash is often king, and a project that promises a $100,000 gross return in two years may well be more attractive to a board of directors than one that promises $150,000 over five years.
Tolerance levels vary, but nobody loves risk. ROI's tendency to favour cost-savings projects doesn't always sit too well in highly entrepreneurial climates. Just remember to do a lot of homework. Complete investment and revenue profiles on the spreadsheet's source tabs will be just as impressive as a fat ROI promise on the front page.
