Unformatted text preview: sitive NPV. The reader interested in learning more about this technique should see any second- or MBAlevel managerial finance text. CHAPTER 10 FOCUS ON e-FINANCE Risk and Refinements in Capital Budgeting Putting the “R” Back into ROI Ever since the economy faltered
in late 2001, information technology (IT) managers have faced
increased pressure to measure
returns on technology investments and to show higher ROIs
and faster project implementation.
Managers must justify projects,
proving that they support strategic business goals, and then track
progress against expectations.
Another key trend: Companies are
moving IT approvals to more
senior levels of management in
order to evaluate better the projects’ overall impact on the company’s business.
In a poll of Computerworld’s
“Premier 100” IT companies,
almost half of the respondents
said they do not perform ROI
analysis on proposed IT projects.
For the 43 percent who calculate
potential paybacks, nonfinancial,
“soft” factors are an important
part of the analysis. The chief
information officer (CIO) may con- sider certain projects—for example, business-to-business (B2B)
commerce—essential to the company’s future.
Methods and metrics to
assess ROI vary among companies.
Illinois communications equipment
maker Tellabs Inc. established a
process for IT projects. This formal
analysis now includes project comparisons. Another important
change is accountability. “In the
past, we haven’t gone back and
done measurements after a project
went live to see how much we did
save or how much we didn’t,” says
Cathie Kozik, CIO and senior vice
Tyco Capital, a New Jersey
financial services company, takes
a different approach. To reduce
risk and boost returns, CIO Robert
Plante divides large projects into
smaller phases and measures ROI
along the way, not just on the total
project. This “plan, do, test, react” 429 In Practice
process enables the company to
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