Do the Math and Build an IT - Finance Partnership. February 25 th, 2015 Learning Lab Session 4B

Transcription

1 Do the Math and Build an IT - Finance Partnership February 25 th, 2015 Learning Lab Session 4B 1

2 Speaker Introduction Tom Dawson, CPA, CFE IT Controller NRECA, Arlington, VA 2

3 Famous Almost Accountants Kenny G Chuck Liddell Bob Newhart Robert Plant John Grisham 3

4 AGENDA Partnering for the Big Project Developing a Business Case Feasibility Analysis Total Cost of Ownership Project Reporting Questions??? 4

5 Partnership 5

6 To help protect your privacy, PowerPoint has blocked automatic download of this picture. Partnering for the Big Project Key to success Building Positive Working Relationships -Dave Wood, TypeFocus 6

7 Project Management Institute - Definition of a Project Temporary group activity Defined beginning and end in time Defined scope and resources Unique product, service or result Not a routine operation Specific set of operations Accomplish a singular goal 7

8 Themes of Successful Projects Initiated with a robust business case, aligned with corporate strategy Limit size and scope Bigger projects = higher failure rate An effective project sponsor, who provides clear direction Manage risk actively Use PM methodology consistently 8

9 Our focus today! Project Life Cycle Planning Support Analysis Implementation Design 9

10 Planning Phase Understanding why a system should be built/bought Determining how the project team will go about building/buying it. 10

11 Developing a Business Case See the OPPORTUNITY Assess the Business Need/Improvement The more a new system addresses a BUSINESS need the higher likelihood of a success I is in BUSINESS but we don t pronounce it because it is a team effort New technology is a common driver but should be second to organizational needs 11

12 Business Case See separate example business cases 12

13 Feasibility Analysis Organizational Economic Technical Should we build? If we build, will they come? Can we build? 13

14 Feasibility Study See example provided separately 14

15 Technical and Organizational Feasibility Experts and senior management collaboration Not covered in this presentation Example shown in separate handout 15

16 Economic Feasibility IT, Finance and Business Unit Buy vs. build analysis Cost benefit analysis Cash Flows Costs and benefits over selected number of years 3 to 5 years common Return on Investment (ROI) Net Present Value (NPV) Sensitivity Analysis 16

17 Buy vs. Build Analysis Required skills available? Resources available? Commercial product available? Which costs more? Funds available? What produces the best value? 17

18 Cost Benefit Analysis What are benefits? Quantitative Benefits Easier to see, tangible Money you receive versus the money you spend Qualitative Benefits Based on intuition and belief How do you measure improved member service? Best if you can determine a tangible worth 18

19 Example Cash Flow In (000 s) 2016 ($) 2017 ($) 2018 ($) Total ($) Increased Sales ,800 Improved Member Service Total Benefits ,085 2 $ Server Software Development Labor Total Development Costs 1, ,000 Hardware Software Operational Labor Total Operational Costs Total Costs 1, ,595 Net Total (585)

20 Return on Investment (ROI) ROI = (Benefits less Costs)/Total Costs Percentage calculation Higher the better 3 to 5 year cash flow Time value of money? 20

21 Example ROI Assumes no present value calculation ROI = Net Total/Total Costs ROI = 490/1,595 ROI = 31% 21

22 Net Present Value (NPV) NPV is the discounted monetary value of the expected net benefits of the project. 22

23 Discounted Cash Flows In (000 s) 2016 ($) 2017 ($) 2018 ($) Total ($) Net Total (585) Discount rate 5% PVF Discounted Net Total (557) PVF = 1 (1+DR)^N PVF present value factor DR discount rate N year in cash flow projection NPV =

24 Sensitivity Analysis Range of inputs Worst and best case scenarios What if In (000 s) 2016 ($) 2017 ($) 2018 ($) Total ($) Net Total (585) Low Scenario (600) High Scenario (550)

25 Change for the Future A good process is worth the time to set up! 25

26 Bloomfire Example An online knowledge-based, collaboration site being evaluated by a volunteer group of IT Community members 26

27 Total Cost of Ownership (TCO) TCO = purchase price + operational cost 27

28 Cost to implement operate, support and maintain, enhance or extend, and decommission an application Sunk Costs - Application costs in previous years Current Cost of Ownership - Cost of application services in current year Future Cost of Ownership Probable Application Costs Before Decommissioning 28

29 Accounting Expense versus Capital (OpEx vs. CapEx) Future benefit? Day to day functioning Capital Useful life Depreciation method 29

30 Reporting Project status reports Can be a simple Excel or Word document Comparative statement - budget to actual Tracked in Excel or financial system 30

31 Sample Status Report Fields Report Date Overall Status Project Summary Key Issues Identified Risks Tasks and Next Steps Decisions Needed Key Future Dates Budgeted Cost Spend to Date 31

32 Conclusions Form strong partnerships Build informative business cases Analyze project feasibility Review costs vs. benefits Prioritize resources Communicate Collaborate 32

33 Questions??? Feel free to me with any questions Or Sarah Kiely 33