The Alinean ROI Dashboard™ methodology

Used to help quantify the value proposition of individual projects, this unique and proprietary methodology refines traditional ROI analysis.
Although it still uses time-honored and trusted standard financial measures - it adds critical new modeling techniques and metrics so the return on technology investments can be more credibly quantified, analyzed and assessed.

 

Traditional cost benefit analysis is enhanced with the Alinean ROI Dashboard model, adding intangible benefits and risk assessment to better value IT project investments, risks and rewards.

Net Tangible Benefits

The tangible benefits of a solution measure the costs of implementation, against possible savings and gains, to calculate the quantifiable financial benefits of the solution. The costs portion of the tangible benefits equation measures all of the up-front and on-going costs for implementing the project. These include:

• Capital Expenses - the investment in systems, software, networks, peripherals, supplies and equipment to deploy and maintain the project

• Implementation Labor - the staff and contract labor to research, purchase, plan, test and deploy the proposed solution

• On-going Management and Support - the staff and contract labor to manage and support the solution after it is deployed

• Operations and Contracts - the recurring fees, leases, facilities and power costs, and the on-going maintenance and support contracts

• Business Unit Costs - the change management, project management and user training fees and labor

The savings portions of tangible benefits are typically grouped into four categories:

1. Labor Savings - the savings due to expected headcount reduction, overtime avoidance or strategic resource re-allocation from implementing the planned project.

2. Expense Reductions - the savings in expenses such as equipment expenses, facilities, net fixed assets, inventory, accounts payable and accounts receivable from implementing the planned project.

3. Strategic / Revenue Benefits - the gains in revenue and associated profit, such as incremental sales from new customer acquisitions and conversion percentage improvements, reduced sales cycles and increased customer retention reduced churn.

4. Working Capital Improvements - reduction in needed working capital investments for items such as inventory or facilities.

The measure of the tangible benefits ultimately pits the project's costs against the total benefits, culminating in the derivation of four key tangible measures of project viability:

• Return on Investment (ROI) - the ratio of the net gain from a proposed project, divided by its total costs. This can include a risk adjusted ROI calculation which includes the net present value (NPV) of the net benefits divided by the NPV of the total project costs.  A variant of this calculation, Risk Adjusted ROI is often included as well to add time value of money (NPV) to the ROI ratio calculation.

• Net Present Value (NPV) - a measure of the net benefit of a project, in today's dollar terms, factoring in the time value of money using a risk-adjusted discount rate.

• Internal Rate of Return (IRR) - the discount rate necessary to drive the NPV to zero; in more practical terms, the value another investment would need to generate in order to be equivalent to the cash flows of the investment being considered.

• Payback Period (Breakeven) - time frame it takes for the project to yield a positive cumulative cash flow.

Intangible Benefits

Many projects have benefits to an organization that are strategic and may be difficult to quantify in absolute monetary terms. Intangible benefits represent strategic benefits that are difficult, or impossible, to accurately predict and measure in financial terms.  Often, however, these intangible benefits can be quantified into Key Performance Indicators such as % market share, customer satisfaction scores or industry position rankings.

Some intangible benefits to be considered when evaluating and measuring the performance of a project include:

• Brand Advantage -reinforcing, advancing or changing a company's brand

• Strategic Advantage - working towards or meeting overall corporate objectives

• Competitive Advantage - releasing solutions faster, developing solutions less expensively, better addressing customer needs, meeting changing market demand, scaling easily and more cost effectively, and gaining market share

• Intellectual Capital - increase in relevant knowledge gained by the staff, and the perceived market value from those gains

• Organizational Advantage - enabling an organization to function more effectively, or reinforcing or recreating a corporate culture

Risk

Risk is a future issue that may affect a project, and lead to increased costs or reduced tangible and intangible gains. Risk can be measured based on the probability of occurrence, and the likely impact on the costs and benefits, in some instances discounting the value of the project significantly.

The risk measurement may include items such as:

• Labor Resources - the risk that required resources may not be available, not have the proper skill set or training, or rely on a small group of experts that cannot be retained easily

• User Acceptance - users may not accept the solution and rebel, or more likely, they will not adopt all or some of the key features, which reduces the benefits substantially.

• Compatibility - the solution may not be compatible with current or future operating systems, platforms or other applications.

• Vendor - the vendor may not be able to deliver the solution in the promised time frame or to the required specifications. The vendor may be a start-up, or not financially sound, so they may not be around in several years to support the solution and deliver required updates and upgrades.

• Management Commitment and Funding - the senior management and the stakeholders may not be fully committed to the project with management support, and especially funding.

• Market or Strategic - the market may shift, competitors may change their strategy, or the company may change strategic direction, changing the project requirements, or changing the business benefits equation.

• Schedule - the project requirements may drive a schedule that is unrealistic. The overruns in schedule may cause cost overruns, delays to benefits, and impacts to other dependent projects.

• Legal and Governance - there may be legal and governance risks and exposures in the project, such as not being able to implement the project in time to meet legal regulations, or a failure that may risk legal exposure. The project or issues with the project may also affect compliance with governance issues such as financial reporting requirements.

• Organization - there may be risks to the organization as a whole, should issues occur, such as a risk involving employee morale or organizational dynamics

• Dependencies - there may be risks that can affect a family of dependent projects, such as delays, resources or budgets.