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08/12/02 FTA Conference Copyright 2002 Anexsys, LLC1
MEASURING ROI IN E-GOVERNMENT
Pat O’Donnell, Anexsys LLC
Introduction:*
08/12/02 FTA Conference Copyright 2002 Anexsys, LLC2
What we will cover:
• Establish need to measure ROI of e-government.
• Demonstrate proven methodologies for measuring e-government ROI.
*
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How ROI initiatives differ in the public sector:
• Agencies must serve all constituents.
• Agencies must abide by specific rules & regulations.
• e-government initiatives deliver on both tangible and intangible policy goals.
*
08/12/02 FTA Conference Copyright 2002 Anexsys, LLC4
The specific value of e-government ROI studies:
• Integration of IT efforts with business/policy objectives.
• Quantify value of non-financial benefits from e-government.
• Demonstrate both cost savings and cost avoidance.
• Becoming accepted “Best Practice” among agencies and jurisdictions.
*
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The specific value of e-government ROI studies (Cont.):
• High cost of failure in e-government initiatives.
• Agencies may soon face legislative pressure to conduct ROI for e-government.- Clinger-Cohen- FASA- GPRA
• Proposed initiatives must compete for funds with dueling priorities (intra-agency/inter-agency).
• ROI helps manage potential risk.(cost overruns, missed deadlines).
*
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Return On Investment models:
• Net Present Value Method
• Benefit Cost Analysis
• Cost-Effectiveness Analysis
• Portfolio Analysis for e-government
*
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Net Present Value method:
• Most basic method of measuring dollar return for a project.Simple and straightforward.
• NPV = Present value of cash flow – net investment
• Most appropriate for internal systems designed to result in specific, tangible and internal productivity improvement.
• Basic decision rule: Independent projects with NPV>$0should be accepted.
*
NPVNPV
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* Net Present Value Example:
IT hardware and software infrastructure project
Microwave tower Microwave tower
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Benefit Cost Analysis:
• Fundamental analysis that calculates project costsrelative to benefits (tangible and intangible).
• Net Social Benefit = Net Total Benefit/Net Total CostThis approach provides more flexibility than NPV becauseit allows additional intangible benefits to be included.
• Most appropriate when there is a need to analyze costs and benefits where market prices do not exist or are inadequate.
• Basic decision rule: if ratio is greater than 1 it means for every $1 spent, more than $1 is returned and project should be executed.
*
BCABCA
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Benefit Cost Analysis (Cont.):
• Example: Consumer surplus is the value people get. Renewonline and pay $3-5 per transaction. Time is worth $19/hour.Surplus is generated.
• Helps place a monetary value on amorphous concepts like the value of “time,” “life” and “natural resources.”
• One very important aspect of e-government involves the savings in time to citizens and businesses in conducting business with the government. Such a savings is difficult to calculate, but it is nevertheless an important potential benefit from e-government.
*
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* Benefit Cost Analysis Example:
Bridge river-crossing project
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Cost-Effectiveness Analysis:
• Project analysis quantifies tangible and intangible benefitsfor a specific group.
• CEA = Total Benefit/Net Total Cost
• Most appropriate when there is a specific goal or measurement of effectiveness affecting a group. Useful at analyzing incremental benefits.
• Basic decision rule: If ratio is greater than 1 it means for every $1 spent more than $1 is returned and project should be accepted.
*
CEACEA
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Cost-Effectiveness Analysis (Cont.):
• Policy makers can clearly see how much they have to spend for a desired result, and they can choose the tradeoff point. CEA is especially useful at comparing the effectiveness (in terms of outputs) of alternative levels of capital expenditures.
*
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* Cost-Effectiveness Analysis Example:
OSHA alternative standards for noise pollution
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Portfolio Analysis for e-government:
• The PA approach enables decision-makers to look at theirentire portfolio of ongoing projects, and evaluate individualprojects in terms of their impact on the entire portfolio of investment projects.
• PA is particularly useful for analyzing the aggregate risks associated with e-government investments.
*
PAPA
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Summary of three methods:
Most appropriate when there is a specific goal or measurement of effectiveness affecting a group. Useful at analyzing incremental benefits.
Basic decision rule: If ratio is greater than 1 it means for every $1 spent more than $1 is returned and project should be accepted.
Project analysis quantifies tangible and intangible benefits for a specific group.
Cost Effective-ness Analysis
Most appropriate when there is a need to analyze costs and benefits where market prices do not exist or are inadequate.
Basic decision rule: If ratio is greater than 1 it means for every $1 spent more than $1 is returned and project should be executed.
Fundamental analysis that calculates project costs relative to benefits (tangible and intangible).
BenefitCost Analysis
Most appropriate for internal systems designed to result in specific, tangible and internal productivity improvement.
Basic decision rule: Independent projects with NPV>$0 should be accepted.
Most basic method of measuring dollar return for a project. Simple and straightforward.
NetPresent Value
When is it most appropriate?
Basic decision ruleWhat is it?
*
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Governing rationales for selecting a specific method:
• Are benefits and costs predominantly private and social?
• Are the benefits and costs tangible or intangible?
• Can intangible benefits be reasonably and agreeably quantified or not?
*
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A word about measuring cost categories:
• Scenario and Sensitivity Analysis
• Think about what policies the project(s) impact.
*
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META Group’s Four approachesto investment justification:
1. Operational efficiency (cost of ownership)
2. Service delivery
3. Financial returns
4. Business value enablement
• No single approach will serve as all–purpose solution.
*
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Two key factors need to be considered:
1. Constituency being served (elected officials, staff, program managers, constituents, partners) each has differing concern.
2. Type of investment being considered: • Ongoing operations• Development
• Set of approaches should be applied with the intention • of shaping perception and ultimately improving • credibility by setting realistic expectations.
*
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1) Operational efficiency:
• Assess the cost to implement or support a given technology domain.
• Unit cost (MIPS, desktop, staffing ratio).
• Cost analysis or benchmarking exercises to prove increases in efficiency.
• Use to justify support critical investment’s impact.
*
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2) Service delivery:
• Assess price and service levels in the delivery ofproductized IT services (e.g. desktop services, subset of applications).
• Assessment of service level agreements(e.g. technical performance, customer satisfaction).
• Justification of ongoing operations.
*
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3) Business value enablement:
• 1-3 is IT metrics based.
• Assessing the value of productivity, risk, knowledge capital, agility, etc.
• Forces IT to understand, perhaps lead, the transformation initiatives.
• “Business dialect” – emotional bond.• Credibility
*
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The Anexsys ROI Template Tool:
• What it is?
• Why did we create it?
• How it is employed (specific examples).
• Benefits to user.
*
You can get the template tool. Simply register at: http://www.anexsys.com/about/about_resour.html. Once
you’ve clicked ‘submit’ a new screen will open and you’ll be able to download the template tool in Excel.
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ROI template:*
Onl
ine
Tax
Fi
ling
Lice
nse
Ren
ewal
Reg
istr
atio
n
Ele
ctro
nic
For
ms
Fre
quen
tly
Ask
ed
Que
stio
ns
e- Pro
cure
men
t
Fle
et
Man
agem
ent
Aut
omat
ed
App
licat
ions
Projected constituent wait time reduction (in minutes) 0 0 0 0 0 0 0 0Projected number of customers serviced annually 0 0 0 0 0 0 0 0Total annual Cost Savings to Constituents** $0 $0 $0 $0 $0 $0 $0 $0 Projected reduction in forms received via the mail annually 0 0 0 0 0 0 0 0Projected Savings by eliminating the need for stamps*** $0 $0 $0 $0 $0 $0 $0 $0Projected Daily administrative savings per employee (in minutes)
0 0 0 0 0 0 0 0Projected Number of employees effected by e-Government
0 0 0 0 0 0 0 0Total Administrative Savings over the course of a year**'' $0 $0 $0 $0 $0 $0 $0 $0Annual projected number of reduced errors 0 0 0 0 0 0 0 0Total administrative savings from reducing errors****
$0 $0 $0 $0 $0 $0 $0 $0
Cu
sto
mer
Sat
isfa
ctio
nA
dm
inis
trat
ive
Sav
ing
s
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ROI template:*
Projected reduction of paper used (in sheets of paper) 0 0 0 0 0Total savings from eliminating the use of paper****""
$0 $0 $0 $0 $0R
even
ue
Sav
ing
s Projected reduction in fees to other agencies or jurisdictions for administering services
0 0 0 0 0
Ad
dit
ion
al
Rev
enu
e Projected sum of transaction fees collected
0 0 0 0 0
Wei
gh
ted
V
alu
es
0 0 0 0 0
Wei
gh
ted
V
alu
es
0 0 0 0 0
Wei
gh
ted
V
alu
es
0 0 0 0 0
Env
iron
men
tal
Sav
ings
08/12/02 FTA Conference Copyright 2002 Anexsys, LLC27
ROI template:
Cos
ts
E-G
ove
rnm
ent
Initi
ativ
e
Onl
ine
Tax
Filin
g
Lic
ense
R
enew
al
Reg
istr
atio
n
Ele
ctro
nic
F
orm
s
Fre
qu
ently
A
sked
Q
uest
ions
Costs of implementing software
Projected costs associated with software upgrades
Network Expenditures (Bandwidth, Routers, Other CPE Equiptments, Contracts)
Hardware expenditures on current project
Increase in anticipated hardware expenditures
Total annual number of staff required to support intiative
*
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ROI template:
Total annual number of staff required to support intiative Total Staff Costs for support of initiative* $0 $0 $0 $0 $0 $0 Additional Costs Additional Costs Additional Costs Additional Costs Additional Costs Total costs associated with e-government implementation $0 $0 $0 $0 $0 $0
Five Year Costs of E-Government Implementation** $0 $0 $0 $0 $0 $0Years 5 5 5 5 5 5Annual decrease in implementation costs -10% -10% -10% -10% -10% -10%
ROI for e-Government 0 0 0 0 0 0
*
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Summary: Confirming ROI a critical factor
in driving e-government growth:
• Agencies can better compete for funding of present andfuture projects within shifting political climates, policies and agendas.
• Agencies will correlate intangible returns with tangible effects for lawmakers and constituents.
• Agencies will minimize risks when undertaking e-government initiatives.
• Agencies can ensure their policy goals are met by the project plan.
*
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Question & Answer:
QUESTION & ANSWER
*
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