Calculating the Long-term Return on Investment for a GIS Web Mapping

Application

Richard C. Daniels, GISPInformation Technology Division

Washington State Department of TransportationOlympia, WA 98504-7430danielri@wsdot.wa.gov

(360) 705-7654

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Why Calculate the Value of Your GIS?• As the size and scope of many GIS applications grow, and we move

from project based GIS’s to Departmental and Enterprise solutions, the distance between the GIS Analyst and decision maker has increased. This means qualitative estimates of the value of a proposed solution that are based on a priori knowledge are no longer sufficient.

• The increasing number of GIS applications within many organizations, combined with a demand by the public for greater financial accountability and transparency, has lead to the need to adopt return on investment methodologies. These methods provide quantitative results that can be used to justify, rank, value, and manage our projects and programs.

• By applying these methods to new and existing applications we will able to answer the three basic question that should be asked about any project: how much will it cost, what are the benefits, and is it a good investment for my organization.

Cost-Benefits - Where is Your Organization?Best Case Neutral Case Worst Case

You measure and track the ROI of all of your IT investments.

Your rank applications based on ROI and you’re able to prioritize your work based on this and other measures (e.g., # of users).

Your organization understands and supported the choices you’ve made. During tough-times $ can be found for important IT projects.

You calculate ROI on major investments; but because it can get complex you only sporadically measure it.

You know how your investments perform relative to each other but you can’t quantify the exact return they generated.

When your budget is reduced you have limited data to know how much you will save when a given application is cut.

You don’t measure the performance of your investments.

Your company isn’t sure what works and what doesn’t, whose using it, and it’s a struggle to develop and meet goals.

Information Technology is viewed as a cost, not an investment. “Do more with less”

WSDOT Survey Monument Mapping Engine• The Monument Mapping Engine is one of our agencies oldest

GIS enabled web applications and was first deployed in 1999 as an ArcView IMS application. The system has been in continues operation since 1999 and supports WSDOT’s ongoing geodetic survey activities.

• This application was selected to demonstrate common return on investment methodologies because usage statistics and cost/benefit data have been maintained for this application throughout its lifetime.

• The history, type, and size of this application allows it be compared to many similar GIS enabled web applications that have been deployed by Local, State, and Federal agencies over the last decade.

Application Description

Year Deployed Version History Environment Development Cost(in 2008 dollars)

1999 1.0 ArcView IMS $42,335

2002 2.0 ArcIMS 2.0 $3,377

2008* 3.0 ArcIMS 9.2 $35,548

2011 4.0 ArcGIS Server 10.0

$3,697

2014 5.0 ArcGIS Server 10.3

$5,047

Annual Costs ---- Maintenance $8,038

The Mapping Engine is designed to support the on-going survey activities of the Department. It uses scale dependent rendering with four map layers and a base map gallery. The initial view shows the location of WSDOT’s geodetic survey monuments and National Geodetic Survey’s stations on top of ESRI’s ™ topographic base map along with Washington county boundaries and State Route mileposts. The user may zoom too or use a Find Station by Name tool to select a WSDOT or NGS monument. Once a station is selected or click-on a pop-up will open showing basic information about the station. The user can obtain the full data sheet for the station by clicking on the hyperlink in the popup.

Version History

GIS Cost-Benefit Analysis• Building a justification for any GIS enabled application can be

boiled down to the following five steps:

– Determine the need and demand for the proposed GIS solution– Outline and prioritize business requirements and opportunities– Estimate Costs (budget and project timelines –time is $)– Estimate benefits– Document and present results to Key decision makers

• A quality Cost-Benefit analysis allows leaders to focus on the advantages and benefits of the proposed solution vs. costs.

• Without this critical “buy-in” your project will not start, die on the vine, or will be subject to cancelation.

Source:Maguire, D., V. Kouyoumjian, and R. Smith. 2008. The Business Benefits of GIS: An ROI Approach. ESRI Press, Redlands, CA.

Three Typical Cost-Benefit Analysis Metrics• Three common metrics can be used to report results for a cost-benefit

analysis.

– The Benefit-Cost Ratio (BCR) is commonly used to estimate an investment’s “bang for the buck” BEFORE a project is initiated. This is expressed as a ratio.

– The Return on Investment (ROI) is commonly used in financial settings to report the GAIN/LOSS from an investment. This is expressed as a percentage.

– The Net Present Value (NPV) is commonly to RANK the importance or expected profitability of a project or program. This is expressed in dollars.

• For existing applications the ROI and NPV can be used to measure the return that is achieved over-time, to determine such things as the pay-back period and “profit” gained from an established application.

Calculating BCR• Benefit-Cost ratio is used to identify the value of money

of a proposed project.

• The higher the BCR the better. In the absence of funding constraints the general rule of thumb is that a ratio >= 1 is a good investment.

• This is done BEFORE the start of a project.

Calculating ROI• Return on Investment is defined as a measure of the profit from

an investment. The simplest form of the ROI formula is:

ROI =

• In the case of public or non-profit organizations this equation is rewritten as follows:

ROI =

• The challenging part is quantifying what constitutes “savings” and to discount them for the year the investment was initially made.

• Can be used to measure the GAIN/LOSS over the life of the application.

Calculating NPV• Net Present Value is defined as the difference between the present value of cash

inflows (benefits) and the present value of cash outflows (costs). The simplest form of the NPV formula is:

• A positive net present value indicates that the earnings generated by a project or investment exceeds the anticipated costs while a negative value indicates a net loss over the given time horizon (n).

• The only investments that should be made are those with positive NPV value within your time horizon (usually two-three years for IT projects).

• NPV can be used to estimate your net profit or loss of an investment and to RANK investments against each other.

Determining Inflation & Discount Rates

Source:International Monetary Fund, Interest Rates, Discount Rate for United States© [INTDSRUSM193N], retrieved from FRED, Federal Reserve Bank of St. Louis https://research.stlouisfed.org/fred2/series/INTDSRUSM193N/, September 25, 2015.

Source:US Inflation Calculator is a part of the CoinNews family of Web sites.

Benefits

Costs

July 1, 2015 3.0%

Calculating Costs

• The actual cost of tangible items such as hardware, software, annual maintenance, and system replacement costs.

• Knowledge of the pay scales for each “employee type” that worked on the project and the hours.

• For projects with long life times, pay scales need to be corrected for salary adjustments.

• If the analysis will cover multiple years discount costs to correct for the value of money, in this case we used 2008 dollars.

CostsCosts Estimated in 2008 Dollars for 6 month project Rate Hours/Quantity AmountProgrammer (Development) $36.08 160 $5,772.80Project Manager $39.82 40 $1,592.80Customer Representative $35.19 20 $703.80Application Testing $23.13 40 $925.20Database Administrator $32.69 20 $653.80Server Administrator $32.69 52 $1,699.88Server Hardware/Software $5,000.00 1 $5,000.00EDN Subscription $2,000.00 1 $2,000.00GIS Software $17,200.00 1 $17,200.00Total $35,548.28

Redevelopment Cost 2010-2011 Rate Hours/Quantity AmountProgrammer (Development) $36.84 80 $2,947.20Customer Representative $35.93 5 $179.65Server Administrator $33.38 10 $333.80Application Testing $23.62 10 $236.20Total $3,696.85Redevelopment Cost 2014 Rate Hours/Quantity AmountGIS Analyst 33.77 40 $1,350.80Programmer (Development) $36.84 80 $2,947.20Customer Representative $35.93 5 $179.65Server Administrator $33.38 10 $333.80Application Testing $23.62 10 $236.20Total $5,047.65

Annual Maintenance Costs 2008 dollars Rate Hours/Quantity AmountMaintenance Analyst $36.08 26 $938.08Database Administrator $32.69 13 $424.97Server Administrator $32.69 13 $424.97GIS Software Maintenance $5,000.00 1 $5,000.00Server Hardware Replacement $5,000.00 0.25 $1,250.00Total $8,038.02

Estimating Benefits• To convert time to money correlations must be made between a

measurable item (e.g., usage or time) and then to money.

– If the site generates income we could use the “increased” sales over the previous method as the benefit, or a measurement such as reduction in the number of abandoned shopping carts.

– If the site saves time, we need to know how much our time is worth (hourly rate) and the time it would have taken using a pervious or manual method.

– If your applications serves a new “market” or your user base increased significantly, how would we measured than?

• Other benefits includes “savings” from automation, to include lower costs for hardware or system administration, reduction in required on-site visits, and in our case a reduction in the number of Survey Stations destroyed by construction each year.

• If the analysis will cover multiple years discount the benefits by the inflation rate

Benefits (2015)Usage Statistics for September 1 to 30, 2015

Service Calls, Hours per Month = (Users * 10 Minutes) / 60Services Calls, Hours per Month = 106 hoursTrans. Tech II Time = 106 x .75 = 80 Hours monthTrans. Engineer II Time = 106 x .25 = 26 Hours monthPer year this works out • 1/2 FTE Transportation Tech. II (960 hours)• 1/15 FTE Trans. Engineer II (312 hours)

2015 Benefits in 2008 Dollars Rate Hours/Quantity Amount

Lookup Services by Trans. Tech. II $23.13 960 $22,204.80

Research Services by Trans Eng. II $28.88 312 $9,010.56

Survey Monuments Saved $5,500.00 10 $55,000.00

Total $86,215.36

Cost-Benefit Results• BCR measures the monetary benefit of a

project vs. costs to execute. In the absence of funding constrains BCR > 1 are good investments within your investment window.

• ROI is used to compare the profitability of investments, or to compare the efficiency of different investments.

• NPV is the difference between present value cash inflows (benefits) and costs. Used to measure the profitability of an investment or project over its lifetime.

Cumulative GIS Costs vs. Total Benefits

Application Lifetime Benefits vs. Costs

NPV

Importance of Cost-Benefit Analysis

• Results from a Cost-Benefit Analyses such as this justify your GIS investments.

• By tracking your Return On Investment (ROI) you can quantify the value in what you do and move away from the idea that GIS is an “expense”.

• The credibility gain by tracking your ROI will help your GIS program grow and become part of your agencies Enterprise IT environment.

Summary• In this case study we demonstrated that even basic

GIS-enabling a web applications can produce a large NPV over multi-year time horizons.

– 1999 initial cost of $44K, NPV $1.2 Million over 16 years– 2008 redevelopment cost $35K, NPV $568K over 8 years

• Conducting this type of analysis for representative applications in your organization will provide the information needed to justify the continuation, expansion, or replacement costs of the environment.

• In this case, this one application “covers” the cost of many applications running in the same environment.

Cost-Benefit Results (Details)High Scenario

Year Culmative CostCulmative Benefit BCR Ratio ROI NPV

2008 $42,061 $75,393 1.8 79% $33,3332009 $49,777 $149,688 3.0 201% $99,9102010 $57,454 $227,235 4.0 296% $169,7812011 $68,572 $309,279 4.5 351% $240,7062012 $76,128 $395,060 5.2 419% $318,9322013 $83,624 $484,167 5.8 479% $400,5432014 $95,728 $576,741 6.0 502% $481,0132015 $103,103 $671,638 6.5 551% $568,535

Low Scenario (No Monument benefits)

Year Culmative CostCulmative Benefit BCR Ratio ROI NPV

2008 $42,061 $18,303 0.4 -56% -$23,7572009 $49,777 $37,818 0.8 -24% -$11,9602010 $57,454 $59,650 1.0 4% $2,1962011 $68,572 $84,219 1.2 23% $15,6462012 $76,128 $111,370 1.5 46% $35,2422013 $83,624 $141,022 1.7 69% $57,3982014 $95,728 $173,261 1.8 81% $77,5332015 $103,103 $207,713 2.0 101% $104,610