INTRODUCTION TO INFORMATION TECHNOLOGY PAYOFF

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Matakuliah : A0814/Investment AnalysisTahun : 2009

REASONS FOR IT PAYOFF MEASURES• How will one know if and when the payoff was

realized?• It is measurable?• How do we know if there is a payoff at all?• Is it due to other factors, such as a strong

economy, poor performance of the competitors, or just better product – and not due to investment in technology?

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Competing Investment• Most executives must understand the strategic

role that technologies play• All other functions compete with IT to get a piece

ot the budget piel. Given that the pie is usulally a fixed amount, the representatives of each function preset its case

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Duration of Payoff• How long it will take to see return on investment?• Near term profitability• Risk reduction• Tangible business enabling IT

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Overall Economic Picture• Unease• Economic factor• Market condition

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HOW HAS INVESTMENT IN IT BEEN MEASRED THUS FAR?

• Profitability • Productivity• Customer Value

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Productivity• Cost benefit analysis• Return on Investment

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Productivity• Cost benefit analysis

– Cost benefit analysis entails examining the difference between the costs incurred and the benefits obtained fromt the investment.

• Cost are determined as a sum of expenses in the development of the system including hardware, software, and consulting. Also added are costs such as training, maintenance, customer support, licensing fees, future upgrades, and interfacing with existing systems

– Benefits are assessed by the return the system generates back to the organization. Benefits can be in the profitability, productivity, or consumer value areas.

• While profitability is easier to measure, productivity gains and particularly consumer value becomes increasingly more difficult to quantify.

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Profitability• Return on Investment

– Is measured by the total investment and the benefit obtained, except that the benefits are asumed to be incurred over time.

– The return, or benefit, is then calculated for a specific time period to generate a percentage on the investment.

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Productivity• Measures vary depending upon the nature of the

work and the industry. – Efficiency

• Efficiency metrics measure the output of an operation vis-a-vis the resources consumed.

– Quality• Improved quality of work that reduces rework of the

product or service can impact productivity.

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Customer Value• Customer satisfaction• Customer loyalty• Long term retention

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Customer Value• In 1999, the University of Notre Dame implemented

a high-speed network called ResNet to access the campus network throughout its residential halls.– Tangible benefit : saving of dial-in phone lines and

modems that dormitory studnets no longer needed to use• FedEx’s investment in online package tracking

gave the customers online tracking ability. • Hyatt hotel customers can track their charges from

their hotel rooms.

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