Introduction: MEASURING ROI IN E-GOVERNMENT. Pat O Donnell, Anexsys LLC. 08/12/02 FTA Conference Copyright 2002 Anexsys, LLC

Transcription

1 Introduction: MEASURING ROI IN E-GOVERNMENT Pat O Donnell, Anexsys LLC 1

2 What we will cover: Establish need to measure ROI of e-government. Demonstrate proven methodologies for measuring e-government ROI. 2

3 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. 3

4 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. 4

5 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). 5

6 Return On Investment models: Net Present Value Method Benefit Cost Analysis Cost-Effectiveness Analysis Portfolio Analysis for e-government 6

7 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>$0 should be accepted. NPV 7

8 Net Present Value Example: IT hardware and software infrastructure project Microwave tower Microwave tower 8

9 Benefit Cost Analysis: Fundamental analysis that calculates project costs relative to benefits (tangible and intangible). Net Social Benefit = Net Total Benefit/Net Total Cost This approach provides more flexibility than NPV because it 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. BCA 9

10 Benefit Cost Analysis (Cont.): Example: Consumer surplus is the value people get. Renew online 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. 10

11 Benefit Cost Analysis Example: Bridge river-crossing project 11

12 Cost-Effectiveness Analysis: Project analysis quantifies tangible and intangible benefits for 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. CEA 12

13 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. 13

14 Cost-Effectiveness Analysis Example: OSHA alternative standards for noise pollution 14

15 Portfolio Analysis for e-government: The PA approach enables decision-makers to look at their entire portfolio of ongoing projects, and evaluate individual projects 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. PA 15

16 Summary of three methods: What is it? Basic decision rule When is it most appropriate? Net Present Value Most basic method of measuring dollar return for a project. Simple and straightforward. Basic decision rule: Independent projects with NPV>$0 should be accepted. Most appropriate for internal systems designed to result in specific, tangible and internal productivity improvement. Benefit Cost Analysi s Cost Effectiv e-ness Analysi s Fundamental analysis that calculates project costs relative to benefits (tangible and intangible). Project analysis quantifies tangible and intangible benefits for a specific group. 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. 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. Most appropriate when there is a need to analyze costs and benefits where market prices do not exist or are inadequate. Most appropriate when there is a specific goal or measurement of effectiveness affecting a group. Useful at analyzing incremental benefits. 16

17 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? 17

18 A word about measuring cost categories: Scenario and Sensitivity Analysis Think about what policies the project(s) impact. 18

19 META Group s Four approaches to 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. 19

20 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. 20

21 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. 21

22 2) Service delivery: Assess price and service levels in the delivery of productized IT services (e.g. desktop services, subset of applications). Assessment of service level agreements (e.g. technical performance, customer satisfaction). Justification of ongoing operations. 22

23 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 23

24 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: Once you ve clicked submit a new screen will open and you ll be able to download the template tool in Excel. 24

25 ROI template: Customer Satisfaction Administrative Savings Online Tax Filing License Renewal Registration Electronic Forms Frequently Asked Questions Projected constituent wait time reduction (in minutes) Projected number of customers serviced annually Total annual Cost Savings to Constituents** $0 $0 $0 $0 $0 $0 $0 $0 Projected reduction in forms received via the mail annually Projected Savings by eliminating the need for stamps*** $0 $0 $0 $0 $0 $0 $0 $0 Projected Daily administrative savings per employee (in minutes) Projected Number of employees effected by e-government Total Administrative Savings over the course of a year**'' $0 $0 $0 $0 $0 $0 $0 $0 Annual projected number of reduced errors Total administrative savings from reducing errors**** $0 $0 $0 $0 $0 $0 $0 $0 e- Procurement Fleet Management Automated Applications 25

26 ROI template: Environmental Savings Revenue Savings Additional Revenue Projected reduction of paper used (in sheets of paper) Total savings from eliminating the use of paper****"" Projected reduction in fees to other agencies or jurisdictions for administering services Projected sum of transaction fees collected $0 $0 $0 $0 $ Weighted Values Weighted Values Weighted Values

27 ROI template: Costs E-Government Initiative Online Tax Filing License Renewal Registration Electronic Forms Frequently Asked Questions 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 27

28 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 $0 Years Annual decrease in implementation costs -10% -10% -10% -10% -10% -10% ROI for e- Government

29 Summary: Confirming ROI a critical factor in driving e-government growth: Agencies can better compete for funding of present and future 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. 29

30 Question & Answer: QUESTION & ANSWER 30