Calculating RoI on IT Projects - An Inescapable Reality

1. Calculating RoI on IT Projects- An Inescapable Reality Gp Capt (Dr) SanjeevSood MBBS,MD,PGDHHM,M Phil(HHSM),AFeISAM,FCGP Hospital Administrator & NABH Empanelled Assessor Gurgaon doc_ssood@yahoo.com

2. Why calculate RoI ? • Aim- • Value realization • Techno-economic appraisal • To convince leadership • To understandthe 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

3. 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.

4. Challenges in Technology Appraisal & Deployment-2 Proposal by CIOs on IT projects, such as implementation of HMIS/EMRs/PACS met withskepticism A barrage of questions posed by mgt that needs cost justification, critical valuations, RoI, DCFs, IRR & pay-back period etc. CIOs on defensive. CIO harassed by the queries on RoI, DCF,IRR,NPV

5. 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

6. Usingthe Simple Paradigm IT 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- egdata analytics

7. Technology Cost/Impact Decision Matrix

8. Economic Appraisal Techniques Cost-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.

9. Economic Appraisal Techniques-2 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.

10. Economic Appraisal Techniques-3 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.

11. Steps in Economic Analysis-A 10 step approach

12. Steps in Economic Analysis (Contd)

13. Steps in Economic Analysis-3

14. 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.

16. 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

17. 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!

18. Dr SanjeevSood Hospital Administrator Gurgaon doc_ssood@yahoo.com