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Farrokh Alemi, Ph.D.

Importance of Return on Investments

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Importance of Return on Investments

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Importance of Return on Investments

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The problem is with our methods

Morgan Stanley:“US firms lost

$130 billionin unwanted IT systems”

List of Costs & Savings

Underestimates affected business processes

Assumes IT increases revenue Assumes unused buildings have no

costs Training & maintenance costs

ignored Impact on productivity and quality

ignored

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Proposed Analysis

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Clear relation in scatter diagram Large pair wise correlation

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Clear relation in scatter diagram Large pair wise correlation

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Clear relation in scatter diagram Large pair wise correlation

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Clear relation in scatter diagram Large pair wise correlation

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

Calculate ROI

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Steps in Proposed Analysis1. Gather data over at least 3 periods

Money spent on IT Use of IT by the business unit Organization’s or business unit’s revenues

2. Examine association between IT cost, use and revenue

Often positive and significant

3. Examine causation Revenue leads to IT use and investment IT investment and use leads to more revenue

4. Calculate ROI

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Investment In DoIT

5,000,000

5,200,000

5,400,000

5,600,000

5,800,000

6,000,000

6,200,000

Year 1999-2000 Year 2000-2001 Year 2001-2002

Bu

dg

et

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Numerous units were merged into DoIT in this time period. DoIT organization defined based on 2002 operation and budget reconstructed.

IT Investment & University Revenue

$170,000,000

$175,000,000

$180,000,000

$185,000,000

$190,000,000

$195,000,000

5,000,000 5,500,000 6,000,000 6,500,000

DoIT Investment

Un

ive

rsit

y E

& G

Re

ve

nu

e

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Example: Evaluation of DoIT

The Division of Instructional & Technology Support Services includes: Audio Visual Services Academic Computing Labs, Electronic Classrooms, GMU-TV, Instructional Resource

Center, Johnson Center Technology Student Technology

Assistance Resource Center.

A key service provided by DoIT is the WebCT course delivery system

Time Frame

Web-CTCourses

WebSeats

1999-2000 120 6,128

2000-2001 229 7,895

2001-2002 434 9,627

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Possible Sequence of Events

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Possible Sequence of Events

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Possible Sequence of Events

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Correlations

  IT investmentWeb-CT

SeatsUniversity Revenue

IT Investment 1

Web-CT Seats 0.943 1

University revenue 0.999 0.942 1

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Possible Sequence of Events

Cause CatalystEnd

resultCondition to

be metCalculated

value

IT Investment

Use of Web-CT

University Revenue

ρIR- ρIU ρUR

=0=.99-.94*.94

= .11

University Revenue

IT Investment

Use of Web-CT

ρRU- ρRI ρIU

=0=.94-.94*.99

=.00

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Conclusion of Analysis

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Objective Analysis of ROI