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Total Value of Ownership Tools for project selection and selling

Total Value of Ownership Tools for project selection and selling. David Altshuler Executive Director TechFoundation N-TEN Boston Conference November 20, 2002. Overview. Why TVO? (TCO?) TCO Strengths & Weaknesses TVO Enhancements Financial Tools Resources. Why TVO/TCO?.

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Total Value of Ownership Tools for project selection and selling

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  1. Total Value of OwnershipTools for project selection and selling David AltshulerExecutive DirectorTechFoundation N-TEN Boston Conference November 20, 2002

  2. Overview • Why TVO? (TCO?) • TCO Strengths & Weaknesses • TVO Enhancements • Financial Tools • Resources

  3. Why TVO/TCO? • When is more expensive cheaper? • Building management buy-in • Ties to 2002 Top Priorities

  4. 2002 Top Priorities (CIO Oct 2002) • Next 18 months

  5. TCO Strengths • Comprehensive • Life-cycle aware • Merges capital and ops costs • Less Program involvement required

  6. TCO Weaknesses • Exclusive focus on cost • How far can you cut? • Tends not to be strategic • Possibly blind to Program

  7. TVO • Addressing TCO weaknesses by capturing incremental changes in organizational / enterprise value as a result of implementing a project. • Q: Where does “value” come from?

  8. Value Drivers • Costs • Revenues • Risks • Opportunities

  9. Value: Decreasing Costs • Classic efficiency projects • Substitution of tech for people • Less available • e-Newsletters • Websites for FAQ’s • Pdf’s for literature fulfillment • Work-shifting to clients

  10. Value: Decreasing Risk • Hard to quantify • Low probability: worst • Disaster recovery • Server downtime • Legal liability

  11. Value: Increasing Revenue • Dollars from existing donors (CRM) • Serving more clients • Increasing reimbursement levels • Finding new relationships (marketing)

  12. Value: Strategic Opportunities • Marc’s discussed zones of activity • Strategic knowledge / timely decision support • New partnerships – suppliers / distribution • Client affinity

  13. Financial Tools • Shape of almost all projects (cash flows) • Payback ratio • ROI/IRR • Net Present Value

  14. Project Cash Flows • Incremental analysis • Invest/Cost Today • Return/Benefit Tomorrow • Challenge: How much cost can we afford today given our guess at the future benefits?

  15. Financial Tools: Payback Ratio • Def: How many months of net benefits will it take to payback the initial cost? Example: • $20,000 IT project producing • $2,000 value per month • 10 months to “payback” project costs

  16. Other Financial Tools: ROI/IRR • Def: If you took the money to pay for the project what would be the equivalent INTEREST RATE you would earn from the benefits of the project? • In percent • Less common in non-profits

  17. Other Financial Tools: NPV • Def: For a known interest rate, what is the net benefit (total benefit less total cost) of completing a project. • In $ • Rare in nonprofits

  18. Real World IT Evaluations (CIO Oct 2002)

  19. Resources • Cost justification memo outline • TechFoundation Programs to create value • TCO spreadsheet

  20. Cost Justification Memo • Programmatic Need Statement • Value Creation Review • Costs • Risks • Revenues • Strategic Opportunities • Negative Implications of No Project • Schedule/Budget (ultra-candid/clear)

  21. TechFoundation Programs • TechMarketplace • IT training beta-test • TechConnect • Looking for content creators • Geeks for America • TechGrants • Free subscription, monthly news See www.techfoundation.org

  22. Total Value of Ownership Numbers beyond the costs… • David Altshuler • www.TechFoundation.org • info@techfoundation.org

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