08/12/02 FTA Conference Copyright 2002 Anexsys, LLC1

MEASURING ROI IN E-GOVERNMENT

Pat O’Donnell, Anexsys LLC

Introduction:*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC2

What we will cover:

• Establish need to measure ROI of e-government.

• Demonstrate proven methodologies for measuring e-government ROI.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC3

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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC4

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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC5

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).

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC6

Return On Investment models:

• Net Present Value Method

• Benefit Cost Analysis

• Cost-Effectiveness Analysis

• Portfolio Analysis for e-government

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC7

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>$0should be accepted.

*

NPVNPV

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC8

* Net Present Value Example:

IT hardware and software infrastructure project

Microwave tower Microwave tower

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC9

Benefit Cost Analysis:

• Fundamental analysis that calculates project costsrelative to benefits (tangible and intangible).

• Net Social Benefit = Net Total Benefit/Net Total CostThis approach provides more flexibility than NPV becauseit 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.

*

BCABCA

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC10

Benefit Cost Analysis (Cont.):

• Example: Consumer surplus is the value people get. Renewonline 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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC11

* Benefit Cost Analysis Example:

Bridge river-crossing project

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC12

Cost-Effectiveness Analysis:

• Project analysis quantifies tangible and intangible benefitsfor 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.

*

CEACEA

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC13

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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC14

* Cost-Effectiveness Analysis Example:

OSHA alternative standards for noise pollution

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC15

Portfolio Analysis for e-government:

• The PA approach enables decision-makers to look at theirentire portfolio of ongoing projects, and evaluate individualprojects 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.

*

PAPA

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC16

Summary of three methods:

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.

Project analysis quantifies tangible and intangible benefits for a specific group.

Cost Effective-ness Analysis

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.

Fundamental analysis that calculates project costs relative to benefits (tangible and intangible).

BenefitCost Analysis

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.

Most basic method of measuring dollar return for a project. Simple and straightforward.

NetPresent Value

When is it most appropriate?

Basic decision ruleWhat is it?

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC17

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?

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC18

A word about measuring cost categories:

• Scenario and Sensitivity Analysis

• Think about what policies the project(s) impact.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC19

META Group’s Four approachesto 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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC20

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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC21

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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC22

2) Service delivery:

• Assess price and service levels in the delivery ofproductized IT services (e.g. desktop services, subset of applications).

• Assessment of service level agreements(e.g. technical performance, customer satisfaction).

• Justification of ongoing operations.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC23

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

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC24

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: http://www.anexsys.com/about/about_resour.html. Once

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

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC25

ROI template:*

Onl

ine

Tax

Fi

ling

Lice

nse

Ren

ewal

Reg

istr

atio

n

Ele

ctro

nic

For

ms

Fre

quen

tly

Ask

ed

Que

stio

ns

e- Pro

cure

men

t

Fle

et

Man

agem

ent

Aut

omat

ed

App

licat

ions

Projected constituent wait time reduction (in minutes) 0 0 0 0 0 0 0 0Projected number of customers serviced annually 0 0 0 0 0 0 0 0Total annual Cost Savings to Constituents** $0 $0 $0 $0 $0 $0 $0 $0 Projected reduction in forms received via the mail annually 0 0 0 0 0 0 0 0Projected Savings by eliminating the need for stamps*** $0 $0 $0 $0 $0 $0 $0 $0Projected Daily administrative savings per employee (in minutes)

0 0 0 0 0 0 0 0Projected Number of employees effected by e-Government

0 0 0 0 0 0 0 0Total Administrative Savings over the course of a year**'' $0 $0 $0 $0 $0 $0 $0 $0Annual projected number of reduced errors 0 0 0 0 0 0 0 0Total administrative savings from reducing errors****

$0 $0 $0 $0 $0 $0 $0 $0

Cu

sto

mer

Sat

isfa

ctio

nA

dm

inis

trat

ive

Sav

ing

s

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC26

ROI template:*

Projected reduction of paper used (in sheets of paper) 0 0 0 0 0Total savings from eliminating the use of paper****""

$0 $0 $0 $0 $0R

even

ue

Sav

ing

s Projected reduction in fees to other agencies or jurisdictions for administering services

0 0 0 0 0

Ad

dit

ion

al

Rev

enu

e Projected sum of transaction fees collected

0 0 0 0 0

Wei

gh

ted

V

alu

es

0 0 0 0 0

Wei

gh

ted

V

alu

es

0 0 0 0 0

Wei

gh

ted

V

alu

es

0 0 0 0 0

Env

iron

men

tal

Sav

ings

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC27

ROI template:

Cos

ts

E-G

ove

rnm

ent

Initi

ativ

e

Onl

ine

Tax

Filin

g

Lic

ense

R

enew

al

Reg

istr

atio

n

Ele

ctro

nic

F

orm

s

Fre

qu

ently

A

sked

Q

uest

ions

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

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC28

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 $0Years 5 5 5 5 5 5Annual decrease in implementation costs -10% -10% -10% -10% -10% -10%

ROI for e-Government 0 0 0 0 0 0

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC29

Summary: Confirming ROI a critical factor

in driving e-government growth:

• Agencies can better compete for funding of present andfuture 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.

*

08/12/02 FTA Conference Copyright 2002 Anexsys, LLC30

Question & Answer:

QUESTION & ANSWER

*