Keyes - Managing IT Performance to Create Business Value

Operational costs/purchasing obligations (goods and services purchased).
Cost savings compared with total costs.
Costs avoided compared with total costs. You can avoid costs by reusing hardware/software, utilizing a partner, etc.
Difference between average qualified bid and the cost of the successful bid. The sum of each calculation is aggregated into a new savings ratio for all transactions.
e Additional capital costssoftware, IT support, software, and network infrastructure.
Technical support costshardware and software deployment, help desk staffing, system maintenance.
Administration costsfinancing, procurement, vendor management, user training, asset management.
End-user operations coststhe costs incurred from downtime and in some cases, end users supporting other end users as opposed to help desk technicians supporting them.
Overtime hours/regular hours worked.
Ratio of earned value to actual cost. EV, often called the budgeted cost of work performed, is an estimate of the value of work actually completed. It is based on the original planned costs of a project.
Break-even analysis. All projects have associated costs. All projects will also have associated benefits. At the outset of a project, costs will far exceed benefits. However, at some point the benefits will start outweighing the costs. This is called the break-even point. The analysis that is done to figure out when this break-even point will occur is called break-even analysis.
SPI is the ratio of earned value to planned value and is used to determine whether or not the project is on target. (See cost performance index for a definition of earned valueEV).
Cost of external contractors/cost of internal resources.
Use real dollars if systems are external customer facing. Use internal budget dollars if these are internal customer-facing systems.
Return on investment. Most organizations select projects that have a positive return on investment. The return on investment, or ROI as it is most commonly known, is the additional amount earned after costs are earned back.
The formula for ROI is

Organizations want the ROI to be positive.

NPV is a method of calculating the expected monetary gain or loss by discounting all expected future cash inflows and outflows to the present point in time. If financial value is a key criterion, organizations should only consider projects with a positive NPV. This is because a positive NPV means that the return from the project exceeds the cost of capital the return available by investing elsewhere. Higher NPVs are more desirable than lower NPVs. Formula for NPV:

• NPV = II+ (sum of) [OCF/(1 + R(r)t] + [TCF/(1 + R(r)n]

where:

• II = initial investment
• OFC = operating cash flows in year t
• t = year
• n = life span (in years) of the project
• R(r) = project required rate of return

from http://www.mtholyoke.edu/~aahirsch/howvalueproject.html

n Use research from a company such as http://www.infotech.com/