What is IT investment?An organizational investment employing or producing IT or IT-related assets.  Each investment has or will incur costs for the investment, has expected or realized benefits arising from the investment, has a schedule of project activities and deadlines, and has or will incur risks associated with engaging in the investment.

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

Senior executives ask: “What is the return we are getting from our investment in IT?”

The CIO asks: “How can IT meet the growing needs of its customers (business units), given the constraints placed on its resources?”

Business managers ask: “Why can’t you run IT like a business (and focus on me, your customer)?”

COST

Customer satisfaction

Value

Approaches to manage

1.Business Value Index (BVI)

2. Total Economic Impact™ (TEI)

3. Val IT

4. 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.

Continued…

BVI methodology helps in:• Intel prioritize investment options• Make data-driven decisions• Monitor progress

Intel IT’s Business Value Chart

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.

Total Economic Impact(TEI)

TEI Approach

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

flexibility

Tempering 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

Comparison

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 findings

IT-impact benefitsEnd-user-impact benefitsEnabled-flexibility benefits Costs

Basic model assumptions that Forrester used

Adoption Assumptions - By Application

Continued..

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