Calculating RoI on IT Projects - An Inescapable Reality

4th International Conference on Transforming Healthcare with IT 6th – 7th Sep. 2013 Hyderabad, India

Calculating RoI on IT Projects-An Inescapable Reality

Gp Capt (Dr) Sanjeev SoodMBBS,MD,PGDHHM,M Phil(HHSM),AFeISAM,FCGP

Hospital Administrator & NABH Empanelled Assessor

[email protected]


Why calculate RoI ?

Aim- Value realization Techno-economic appraisal To convince leadership To understand the potential impact on cost and revenue generation To facilitates investment prioritization by making a project-to-project comparison between investment options

CIO walking tight rope


Challenges in Technology Appraisal & Deployment

Capital Intensive

Successful outcome may be difficult to ascertain

Interoperability & lack of qualified staff for IT adoption

Viewed as a cost overhead rather as an enabler & differentiator that can transform their operations & overall productivity.


Proposal by CIOs on IT projects, such as implementation of HMIS/EMRs/PACS met with skepticism

A barrage of questions posed by mgt that needs cost justification, critical valuations, RoI, DCFs, IRR & pay-back period etc.

CIOs on defensive.

Challenges in Technology Appraisal & Deployment-2

CIO harassed by the queries on RoI, DCF,IRR,NPV

Economic Appraisal of IT Projects

Needs systemic analytic approach applying knowledge spanning multiple disciplines Thus, calculating RoI for CIOs may be an inescapable reality which they have to face in this era of fiscal accountability

PM

Healthcare IT

Finance

Cost accountan

cy


Using the Simple ParadigmIT projects - long gestation period & payback

should be looked at only after 3 - 5 years

Intangible benefits such as, improving healthcare quality, efficiency & accessibility, & are difficult to assign any monetary value

Certain benefits of IT adoption -coordinated & efficient care ,extend & span beyond the Org units due to integrated delivery systems- eg data analytics


Technology Cost/Impact Decision MatrixCost

ImpactImprove No change Worsen

Increase 1. ?? 2.Never 3.Never

No change 4.Always 5. ?? 6.Never

Decrease 7.Always 8.Always 9. ??


Economic Appraisal TechniquesCost-benefit analysis-

This technique is used to evaluate, systematically, multiple objectives & actions that are not mutually exclusive & is applied, when all aspects of cost & benefit of the selected technology can be assigned a monetary value.

The outcome of this analysis is presented in Rs terms that enable decision makers to decide in favor of alternative that has the lowest cost & highest benefit.

Today, the IT architects such as cloud computing, virtualization, mobile technologies & SOA do exactly that, giving maximum value for money.


Cost-effectiveness –

Used to evaluate multiple ways (usually mutually exclusive alternatives) of reaching a single objective e.g., to buy HMIS off the shelf or develop & customize one’s own .

For many health IT applications, it may not be feasible to measure the benefits or outcome in financial terms e.g., loss of life or limb cannot be precisely assessed ;benefits of the shortened ALOS may not be possible to assess considering more no of pts that will be treated on the same no of hosp beds .

In this case, one might estimate the cost associated with extending life for addl yr or cost of hospitalization/day .The decision makers may adopt the technology with lowest cost per life year saved or hospital day reduced of treatment.

Economic Appraisal Techniques-2


Cost-utility analysis-

Measures interventions effect on both the quantitative & qualitative aspects of HC, like measuring the quality of life extended by using tools like QALYs e.g., the extended yr spent in leading a healthy life rather than suffering in a hosp.

Economic Appraisal Techniques-3


Steps in Economic Analysis-A 10 step approach

5.Analyze Benefit-direct/indirect,short/long term

4.Analyze costs- TCO;direct & indirect costs

3.Develop an analytic framework for cost/benefits: convert intangible benefits to tangible factors

2.Identify alternatives

1.Define problem & identify the objectives-what the Org desires ?


Steps in Economic Analysis (Contd)

10.Discuss resurts in terms of validity & re-evaluate decisions-continuous monitoring

9.Ethical issues-Who receives these benefits?

8.Deal with Uncertainty-Sensitivity analysis

7. Perform discounting & amortization

6.Differentiate perspective of analysis-payor,provider & patient


ROI = (PV OF EXPECTED BENEFITS / PV OF EXPECTED COST) * 1003.Develop an analytic framework for cost/benefits

convert intangible benefits to tangible factors

Competitive Advantage,Patient Safety

Steps in Economic Analysis-3


Factors affecting ROISince ROI may not factor in all risk or intangible rewards, it is prudent to list some of those risks and intangibles that may impact an IT project

Lack of resources—Developers or testers may not be available or may not have the proper skill sets, requiring additional funding from the company.

Dissatisfied client—The client or users may be dissatisfied with the IT solution you delivered and reject it until it’s corrected. You may need to add code, burning up more time, testing, and money. Or, the solution may not be compatible with current or future operating systems, platforms, or other applications.

Unsatisfactory executive commitment—The executive team may not be fully committed to the project (e.g., dissatisfaction with the proposed project budget).

Vendor delays—Sometimes, vendors may be unable to deliver hardware or software when you need it, impacting your release date and potential revenue.


Summing Up

ROI < 100 % should not be undertaken unless there are compelling reasons to do so & strong executive sponsorship for the project

Accurate IT valuation may not be easy to ascertain or ensure failure of an IT project may have several causes

And root cause may lie in people & not technology per se-selecting technology for inappropriate reasons

Accurate technology appraisal & its value realization is a complex, data intensive & challenging process that demands diverse skills & time by the CIO


Summing Up-2

Armed with above knowledge & the given analytic framework, the CIO is better equipped to put up a strong business case & convincing argument for IT investments

Supported by a mature & visionary leadership, he can have a smooth sailing in achieving an IT empowered organization as a benefit, & also empowered patients as a bonus!


Dr Sanjeev SoodHospital Administrator

Gurgaon

[email protected]

Calculating RoI on IT Projects - An Inescapable Reality

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