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Project-Level Financial Measures Quantify Project Value

February 19, 2018

This week, I start a two-part series focused on project-level financial measures, like ROI, a business strategy used at the beginning of significant IT projects. 
When someone asks about ROI, they are really asking: What do I get back in return for the money I plan to spend and what is it really worth?
ROI Is One of Many Measures   
ROI analysis is one of a number of ways to measure the financial impact of a proposed IT project. ROI analysis is a well-established practice that’s frequently discussed. People who work with numeric analysis of projects have written articles that explain it effectively using clear examples. 
Calculating ROI to Realize Project Value is a good general ROI introduction. Calculating ROI for process improvement explains the more demanding analysis involved with the introduction of IT process improvements—do they produce demonstrable ROI?
UrbanCode Deploy ROI Example
IBM UrbanCode Deploy is a tool for automating application deployments through a number of environments. It’s designed for continuous delivery in agile development, while providing the audit trails, versioning and approvals needed in production. Interestingly, it comes with its own ROI tool that generates a report after 13 numeric questions are answered. The report estimates and provides ROI analysis, which can be useful when justifying the project. 
Here are the main questions asked by the tool followed by answers used to generate an example analysis. 
  1. What is the fully loaded hourly rate of your deployment team? $55
  2. How many applications per year does your team release (we'll ask how many times you release each one later)? 2
  3. About how many MAJOR releases per year (for each of these applications) are typically performed? 5
  4. About how many MINOR releases per year (for each of these applications) are typically performed? 10
  5. About how many man-hours on average does it require to deploy to test environments? 2
  6. About how many man-hours on average does it require to get a MAJOR release into production? 10
  7. About how many man-hours on average does it require to get a MINOR release into production? 2
  8. What is the average error rate of deployments for this application? 5
  9. About how many Dev/Test environments do you have (for each application)? 3
  10. About how many deployments do you perform per test environment (for each application's release)? 5
  11. About how long, on average, does it take to fix any errors? 4
  12. About how many FTEs (full time employees) are currently writing and maintaining deployment scripts? 2
  13. How much do you expect automation to reduce the following:
    • A reduction in your deployment effort 50
    • A reduction in script writing 80
    • A reduction in the number of errors 75
The ROI tool takes your numeric inputs and does the calculations. In this case, using the answers that I provided, the result were:
Current Costs $771,280.00
Automated Costs $195,680.00
Yearly Savings $575,600.00
For analysis like this, you would probably run the tool several times using different answers depending on best-case and worst-case scenarios. For this ROI analysis, some answers are facts (what is the fully loaded hourly rate of your deployment team) whereas other answers are estimates (how much do you expect automation to reduce the amount of script writing).
Analysis in the Context of a Project  
For significant IT projects, those where many millions of dollars will be spent, detailed financial analysis is necessary to get support and signoff for the project. Large projects usually employ specialists from different departments within the company. For your projects, you may be able to rely on the support from a finance department employee who was assigned to your project. This person knows the tools and approaches used by the finance community and knows what thresholds have to be met and exceeded for the project to get support from the internal business community.
What’s Next?
Next week, I’ll finish this brief series on financial analysis of projects by writing about the usefulness of other financial tools, including time internal rate of return and net present value. 

Posted February 19, 2018| Permalink