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How to Financially Justify Your Geospatial Projects:
The Companion Workshop to GITA’s Return on Investment Workbook
Presented to: FGDC CAP Grant AwardeesCategory 5: ROI Methodology
April 14, 2010
Mary Ann Stewart
ROI Seminar Facilitator
Presented to: FGDC CAP Grant AwardeesCategory 5: ROI Methodology
April 14, 2010
Mary Ann Stewart
ROI Seminar Facilitator
Who is GITA?Who is GITA?
The Geospatial Information & Technology Association (GITA) is a non-profit association focused on providing education and information exchange on the use and benefits of geospatial information and technology worldwide.
GITA Community
Who is GITA?Who is GITA?
Oil/G
as
Electric
Water/w
astewater
Telecom
munications
Transportation
Local/P
ublic Works
County/R
egional
State
Federal (F
GD
C, etc.)
Softw
are/Hardw
are Vendors
System
Integrators
Consultants/S
ME
’s
Public O
rganizations
Private S
ector
Utilities
Infrastructure Government Private International
Co-Sponsors of GITA’s ROI Co-Sponsors of GITA’s ROI Research Project Research Project
Project GenesisProject Genesis
Highly positive response to 2003 GITA Conference Seminar, “Using Business Case and ROI to Justify GIT Spending”
Lack of methodology to determine ROI for geospatial information technology
Request from FGDC to extend methodology and templates for multi-agency projects
Project ObjectiveProject Objective To develop and document a formal
methodology for preparing a business case, including ROI, within utilities and government agencies
To extend this methodology to multi-agency projects
To develop case studies for utilities and government
To provide training and support to practitioners
Project BenefitsProject Benefits
Standardized and documented methodology for developing geospatial business cases
Workbook with templates to assist multi-agency projects in applying the standards
Resource to support investment decisions by agencies engaged in complex projects
Geospatial Projects Need Geospatial Projects Need Financial Analysis Financial Analysis
Justification for investment comes from business applications
BUT… Benefits are difficult to predict Applications are complex and may require
significant upfront investment Multi-agency projects require a different
approach to analysis Managers often make decisions with
incomplete understanding
Geospatial Information Geospatial Information Technology is a Critical Technology is a Critical
InvestmentInvestment
Why ROI?Why ROI? Large amounts of money involved Compete with other investment
opportunities Ensure full validation of project prior
to initiation Identify opportunities to structure
projects to achieve benefits quicker Detailed documentation to improve
milestone and post implementation reviews
ProtectInterests of Citizens & Investors
Understand Financial Impact
of ProjectsSelect Best from Many Alternatives
Investment Analysis Is Investment Analysis Is a Fiduciary Responsibilitya Fiduciary Responsibility
and Public Dutyand Public Duty
Financial Analysis Quantifies Financial Analysis Quantifies Investment ValueInvestment Value
How long before we see
a return?
How confidentare we in the
financial projections?
Are there better
alternativesfor our money?
By howmuch?
Dobenefitsoutweighcosts?
When Should You Do ROI?When Should You Do ROI?
Strategy Development Project Initiation Project Detailed Design
completion Project completion When in operation for some time When assessing replacement of
the tool
Quantitative MeasuresQuantitative Measures
NPV
Subtract Costs from
Benefits
ROI
Divide Benefits by Cost
BreakEven
Cumulative Benefits Equal
Cumulative Costs
PayBack
Time from Now to Breakeven
Point
Each Measure Has a Best UseEach Measure Has a Best Use
NPV Best overall measure of financial value Higher NPV always identifies better investment
ROI Shows whether benefits outweigh costs Inappropriate for comparing investments (can
have high ROI with low NPV, etc.) Breakeven Point and Payback Period
Shows whether benefits outweigh costs Important political measure Inappropriate for comparing investments
Investment Analysis ProcessInvestment Analysis Process
Define theInvestment
STEP 1CalculateCosts
STEP 2CalculateTangible Benefits
STEP 3ScheduleCash Flows
STEP 4
PerformFinancial Analysis
STEP 5PrepareStrategic Analysis
STEP 6
Step 1: Step 1: Define the InvestmentDefine the Investment
Create a project identify Clearly define scope Prepare comprehensive project
plan List proposed applications
Step 2: Step 2: Calculate CostsCalculate Costs
Capital/One-time Costs Hardware & Software Data Acquisition & Conversion Start-up Services
Operating/Ongoing Costs New Hires Salary Adjustments Hardware & Software Maintenance Training Support Services Data License Fees
Typical GIS CostsTypical GIS Costs Hardware integration with
pre-existing computing infrastructure
Evaluation, selection, acquisition and installation of software
Undertaking requirements/needs analysis
Contractual aspects systems customization Applications portfolio
development Interfacing to other ‘data
servers’ and operational systems
Business case analysis Project management Delivery and installation Business process re-
engineering Transitional costs (i.e. parallel
running of old and new systems)
On-going cost implications (i.e. staff costs and consumables)
Data purchase Data capture, data conversion Data re-survey and validation Training, human resources
planning, skills development and re-skilling
Labor Costs Labor Costs Job Catetory Method Nature of Work 2007 2008 2009
Hrs/FTEs
Hrs/FTEs
Hrs/FTEs
Project Manager per FTEProject coordnation and
oversight 1 1 1
Asst. Project Manager per Hour
Technical lead; pilot management 1 1 1
Database Design Specialist per Hour Design the databases 69
GIS Data Steward per Hour
Design databases; implement geodatabase; administer geodatabase 130 161 331
SQL Database Administrator per FTE
Maintain the SQL database accessed by the geodatabase 65 30 38
Server Administrator per Hour
Maintain any servers purchased for test and production 0.25 0.25
GIS Product Support Specialist per Hour
Liaison to software vendor; assists with training 40 40 40
GIS Analyst - Development
per FTE
Perform manual geoprocessing on street data 1
Contract and Procurement CostsContract and Procurement Costs2007 2008 2009 2010 2011
New hardware (purchase price or lease)
Workstations for DOT Staff $5,000.00 $11,000.00 $12,000.00 $5,000.00 $2,500.00
FTP Server $15,000.00
Hardware maintenance fees
Replacement Servers (Post-Production) and Software Maintenance $30,000.00
New software
ArcSDE $15,000.00
SQL Server (Hardware and Software) $30,000.00 $43,075.6
3
ArcGIS Server (Hardware and Software) $40,000.00 $42,025.00
Arc/Info for No Data Pilot $12,812.50
Software maintenance fees
ESRI Software Maintenance $11,038.13
Application service provider (ASP) and Internet service provider (ISP) fees
Sharepoint Licenses $600.00 $600.00 $600.00 $600.00
Step 3:Step 3:Calculate Tangible BenefitsCalculate Tangible Benefits
Increase productivity Add revenue source/enhance
collection Reduce fee/fine Eliminate a service, building, or
process Provide benefit to the public
Productivity BenefitsProductivity Benefits
2007 2008 2009 2010 2011
Dept of Natural Resources: Provide increased level of service by responding to research requests that would require 1/4 FTE per year without data project.
0.25 FTE
0.25 FTE
Washington Utilities and Transportation Commission: Eliminate the processing time to manipulate purchased data.
0.01 FTE
0.01 FTE
Dept of Natural Resources: Reduce time to compile trail and forest road data for public lands quadrangle map series - 2.5 weeks/map X 10 maps/yr 0.5 FTE 0.5 FTE
DOT: Reduce time gathering data from local partners (16 hours per month for 6 regions) 192 hrs.
384 hrs.
1152 hrs.
1152 hrs.
DOT: Reduce time gathering data to scope a project (70 projects per year @ 3 hours per project times 6 regions) 210 hrs.
420 hrs.
1260 hrs.
1260 hrs.
DOT: Reduce the time needed to update statewide road maps by providing data directly from WA-Trans. (209 hours per year for a variety of maps produced)
52.5 hrs.
105 hrs. 209 hrs. 209 hrs.
Other BenefitsOther Benefits
2007 2008 2009 2010 2011
Savings to the DOT Planning Office: Eliminate the need for contracts to acquire data for transportation planning / scoping projects $35,000.00 $35,875.00 $36,771.88 $37,691.17 $38,633.45
Avoid the cost of purchasing commercial centerline data for 30,000 miles of city roads $31,518.75 $32,306.72 $33,114.39
Savings to DOT Construction Office: More efficient data acquisition by contractors ($130 per project in 2007 dollars, 80 projects per year) $11,199.66 $11,479.65
Savings to DOT Construction Office: Eliminate data set merging by contractors ($600 per project in 2007 dollars, 25 projects per year) $16,153.36 $16,557.19
Step 4:Step 4:Schedule Cash FlowsSchedule Cash Flows
2008 2009 2010 2011 2012
Cash Flows for All Participants
Costs (Future Value)($2,330,62
5)($2,391,24
5)($4,460,25
5)($5,539,72
4) ($6,599,100)
Benefits (Future Value) $326,334 $4,029,121 $8,123,411 $16,847,64
7 $18,661,531
Present Value Multiplier: 100.0% 97.4% 94.9% 92.5% 90.1%
Current Values
Annual Project Costs($2,330,62
5)($2,329,75
6)($4,233,82
0)($5,123,26
9) ($5,946,071)
Cumulative Costs ($2,330,625) ($4,660,381) ($8,894,200) ($14,017,469) ($19,963,540)
Annual Project Benefits $326,334 $3,925,515 $7,711,007 $15,581,105 $16,814,835
Cumulative Benefits $326,334 $4,251,849 $11,962,856 $27,543,962 $44,358,797
Cumulative Net Benefits ($2,004,291) ($408,531) $3,068,656 $13,526,492 $24,395,257
Refining the Investment Refining the Investment StrategyStrategy
Perform sensitivity analysis regarding cash flow schedule, opportunity cost of money
Different assumptions are variables in the decision
Create alternate scenarios Evaluate the different options
Step 5:Step 5:Perform Financial AnalysisPerform Financial Analysis
Net Present Value: $17.87 M Annualized Return on Investment:
10.9% Breakeven Point: 2011 Payback Period: 4 years Inflation Rate: 2.50% Opportunity Cost of Capital: 5.0% Project Life: 20 Years
Step 6:Step 6:Prepare Strategic Analysis Prepare Strategic Analysis
Can WeStay in
Business?
Growth
Morale
Safety
Goodwill
Regulatory Compliance
Clean Environment
Competitive Advantage
Geospatial Strategic BenefitsGeospatial Strategic Benefits
Typical strategic benefits from geospatial projects include:
Shared data and services Improved accuracy, consistency, timeliness of
data Better access to data Improved services to citizens Ability to integrate data among other systems Information for improved decision making Ability to generate new meaning from the data
Multi-Agency Case Study Multi-Agency Case Study
Multi-agency study will cover wide range of applications, benefits, costs
Refine templates and approach Conduct in-depth interviews with
participating agencies Financial analysis based on individual
and combined business cases
WA DOT Breakeven PointWA DOT Breakeven Point
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028
Cost Benefit
WA-Trans Multi-Agency Breakeven WA-Trans Multi-Agency Breakeven PointPoint
0
5000
10000
15000
20000
25000
30000
2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028
Cost Benefit
GITA Research Effort Provides GITA Research Effort Provides Ongoing Assistance to Practitioners Ongoing Assistance to Practitioners
Results from previous case studies including:
Complete spreadsheets Tangible and strategic analysis Enhanced templates
Participation in on-line international research community
Guide direction for future research
