How to Financially Justify Your Geospatial Projects :

1. How to Financially Justify Your Geospatial Projects: The Companion Workshop to GITA’s Return on Investment Workbook

2. Presented to: FGDC CAP Grant Awardees Category 5: ROI Methodology April 14, 2010 Mary Ann Stewart ROI Seminar Facilitator

3. Who is GITA? The Geospatial Information & Technology Association (GITA) is a non-profit association focused on providing education and information exchange on the use and benefits of geospatial information and technology worldwide.

4. GITA Community International Private Government Infrastructure Who is GITA?

5. Co-Sponsors of GITA’s ROI Research Project

6. Project Genesis • Highly positive response to 2003 GITA Conference Seminar, “Using Business Case and ROI to Justify GIT Spending” • Lack of methodology to determine ROI for geospatial information technology • Request from FGDC to extend methodology and templates for multi-agency projects

7. Project Objective • To develop and document a formal methodology for preparing a business case, including ROI, within utilities and government agencies • To extend this methodology to multi-agency projects • To develop case studies for utilities and government • To provide training and support to practitioners

8. Project Benefits • Standardized and documented methodology for developing geospatial business cases • Workbook with templates to assist multi-agency projects in applying the standards • Resource to support investment decisions by agencies engaged in complex projects

9. Geospatial Projects Need Financial Analysis Justification for investment comes from business applications BUT… • Benefits are difficult to predict • Applications are complex and may require significant upfront investment • Multi-agency projects require a different approach to analysis • Managers often make decisions with incomplete understanding

10. Geospatial Information Technology is a Critical Investment

11. Why ROI? • Large amounts of money involved • Compete with other investment opportunities • Ensure full validation of project prior to initiation • Identify opportunities to structure projects to achieve benefits quicker • Detailed documentation to improve milestone and post implementation reviews

12. Understand Financial Impact of Projects ProtectInterests of Citizens & Investors Select Best from Many Alternatives Investment Analysis Is a Fiduciary Responsibilityand Public Duty

13. How long before we see a return? Dobenefitsoutweighcosts? By howmuch? How confidentare we in the financial projections? Are there better alternativesfor our money? Financial Analysis Quantifies Investment Value

14. When Should You Do ROI? • Strategy Development • Project Initiation • Project Detailed Design completion • Project completion • When in operation for some time • When assessing replacement of the tool

15. Cumulative Benefits Equal Cumulative Costs Subtract Costs from Benefits Break Even NPV ROI Pay Back Divide Benefits by Cost Time from Now to BreakevenPoint Quantitative Measures

16. Each Measure Has a Best Use • NPV • Best overall measure of financial value • Higher NPV always identifies better investment • ROI • Shows whether benefits outweigh costs • Inappropriate for comparing investments (can have high ROI with low NPV, etc.) • Breakeven Point and Payback Period • Shows whether benefits outweigh costs • Important political measure • Inappropriate for comparing investments

17. STEP 6 PrepareStrategic Analysis STEP 5 PerformFinancial Analysis STEP 4 ScheduleCash Flows STEP 3 CalculateTangible Benefits STEP 2 CalculateCosts STEP 1 Define the Investment Investment Analysis Process

18. Step 1: Define the Investment • Create a project identify • Clearly define scope • Prepare comprehensive project plan • List proposed applications

19. Step 2: Calculate Costs • Capital/One-time Costs • Hardware & Software • Data Acquisition & Conversion • Start-up Services • Operating/Ongoing Costs • New Hires • Salary Adjustments • Hardware & Software Maintenance • Training • Support Services • Data License Fees

20. Hardware integration with pre-existing computing infrastructure Evaluation, selection, acquisition and installation of software Undertaking requirements/needs analysis Contractual aspects systems customization Applications portfolio development Interfacing to other ‘data servers’ and operational systems Business case analysis Project management Delivery and installation Business process re-engineering Transitional costs (i.e. parallel running of old and new systems) On-going cost implications (i.e. staff costs and consumables) Data purchase Data capture, data conversion Data re-survey and validation Training, human resources planning, skills development and re-skilling Typical GIS Costs

21. Labor Costs

22. Contract and Procurement Costs

23. Step 3:Calculate Tangible Benefits • Increase productivity • Add revenue source/enhance collection • Reduce fee/fine • Eliminate a service, building, or process • Provide benefit to the public

24. Productivity Benefits

25. Other Benefits

26. Step 4:Schedule Cash Flows

27. Refining the Investment Strategy • Perform sensitivity analysis regarding cash flow schedule, opportunity cost of money • Different assumptions are variables in the decision • Create alternate scenarios • Evaluate the different options

28. Step 5:Perform Financial Analysis • Net Present Value: $17.87 M • Annualized Return on Investment: 10.9% • Breakeven Point: 2011 • Payback Period: 4 years • Inflation Rate: 2.50% • Opportunity Cost of Capital: 5.0% • Project Life: 20 Years

29. Step 6: Prepare Strategic Analysis Competitive Advantage Safety Goodwill Can WeStay in Business? Morale Regulatory Compliance Growth Clean Environment

30. Geospatial Strategic Benefits Typical strategic benefits from geospatial projects include: • Shared data and services • Improved accuracy, consistency, timeliness of data • Better access to data • Improved services to citizens • Ability to integrate data among other systems • Information for improved decision making • Ability to generate new meaning from the data

31. Multi-Agency Case Study • Multi-agency study will cover wide range of applications, benefits, costs • Refine templates and approach • Conduct in-depth interviews with participating agencies • Financial analysis based on individual and combined business cases

32. WA DOT Breakeven Point

33. WA-Trans Multi-Agency Breakeven Point

34. GITA Research Effort Provides Ongoing Assistance to Practitioners • Results from previous case studies including: • Complete spreadsheets • Tangible and strategic analysis • Enhanced templates • Participation in on-line international research community • Guide direction for future research

35. Questions? Mary Ann Stewart mastewart@sunflower.com (785) 865-5251