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| D8: | Return on Investment for Information Technology Providers: Using ROI as a Selling and Management Tool | ||
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The author, Tom Pisello, is currently CEO and co-founder of Alinean, developer of customized ROI sales tools for IT vendors, and a former Gartner Managing VP and noted ROI and Total Cost of Ownership (TCO) expert, who has worked with hundreds of leading IT vendors over the past eight years to develop customized ROI selling tools and models. This work is a guide that will help IT vendors understand ROI and develop their own strategies, methodologies and models to apply ROI analysis as a tool to improve the analysis, procurement and financial management of their technology solutions.
Aimed at Information Technology (IT) provider executives, product managers, marketing managers, sales professionals and consultants, this book takes a micro-economic view of IT projects, providing the background, methodology and tools to predict the costs and benefits of these projects to a prospect‚s business. This book will illustrate how such techniques can be applied to shorten the technology sales cycle, increase sales effectiveness, gain competitive advantage, and increase the returns from the solutions.
Those who are selling IT hardware, software, and solutions are under increasing scrutiny to prove the value of their technology. Businesses are reacting to the end of the greatest period of technology growth during the Internet bubble - with a backlash - demanding that every project add to the bottom-line. IT solution providers must understand how to use the time-honored financial analysis tools of business and apply the principal of ROI directly to their products and offerings. This book helps to prepare the Information Technology solution provider for the questions and requirements that customers will be presenting in the months and years to come.
The introduction makes a case for why ROI is such an important topic today, discussing how we arrived at the current market opportunity, why CIOs are struggling with budget and value issues, and what lies ahead. The following chapters discusses the basics of traditional ROI analysis, introduces a new and improved ROI model and methodology that will help IT vendors better make their business case to skeptical CIOs, and provides useful tips for applying ROI to selling IT solutions. The Appendices provide references and case studies, providing the building blocks for IT vendors to understand ROI, construct their own ROI models, and apply ROI with prospects and customers.
| Preface | i |
| Forward | iii |
| Introduction | 1 |
| Challenge of the Computer Paradox | 1 |
| Labor Displacement | 2 |
| Asset Displacement | 4 |
| Overhead Displacement | 4 |
| What it Means | 5 |
| Section I - IT Spending and ROI | 7 |
| IT Spending and the Internet Bubble | 7 |
| The Party's Over | 9 |
| The IT Spending Paradox | 11 |
| The Information Economic Paradox | 16 |
| Trends for Information Technology Providers | 16 |
| Extending Asset Lifecycles | 18 |
| Consolidation | 19 |
| Services | 19 |
| Network Services: The Next Big Thing | 22 |
| Information Technology Leaders verses Managers | 24 |
| The Solution Providers‚ Plan for Success | 25 |
| Availability | 26 |
| Security | 28 |
| Accountability | 31 |
| Section II - Return on Investment for IT | 32 |
| ROI is Now a Requirement | 32 |
| What is ROI Analysis? | 33 |
| Case Study: Traditional ROI Defined | 33 |
| Project Costs | 34 |
| Project Benefits | 34 |
| Net Tangible Benefits: Comparing Costs and Benefits | 35 |
| Return on Investment (ROI) Defined | 36 |
| Net Present Value (NPV) | 38 |
| Internal Rate of Return (IRR) | 40 |
| Payback Period | 41 |
| Running "What-if" Scenarios | 41 |
| Case Study: Applying "What-If" analysis to determine sensitivity | 42 |
| Calculating Costs | 42 |
| Chart of Accounts for Costs | 43 |
| Capital Expenses | 43 |
| Implementation Labor | 44 |
| On-going Management and Support | 45 |
| Operations and Contract Expenses | 45 |
| Quantifying the Tangible Benefits | 45 |
| Labor Savings | 46 |
| Case Study: Help Desk Metrics | 47 |
| Case Study: Enterprise Policy Management | 48 |
| Capital Expense Reductions | 50 |
| Case Study: Demo Automation with an Online Meeting Center | 50 |
| Productivity Benefits | 52 |
| Case study: Higher Availability | 52 |
| Business Benefits | 53 |
| Case Study: Customer relationship management (eCRM) | 54 |
| Section III: The ROI Dashboard - a New ROI Model |
56 |
| Why did ROI Analysis fall from favor? | 56 |
| Creating a new ROI model to Address Issues | 56 |
| Tangible verses Intangible Benefits | 57 |
| Case Study: Business Intelligence Systems | 58 |
| ROI Analysis Requires an Investment | 59 |
| ROI as an Objective Project Selection Tool | 59 |
| Case Study: Why is the ROI Dashboard valuable to IS Departments? | 61 |
| ROI and Risk Management | 61 |
| ROI and Vendor Credibility | 62 |
| The New ROI Dashboard | 64 |
| The ROI Dashboard and Lifecycle Management | 65 |
| The ROI Dashboard and Risk | 66 |
| Case Study: Risk Analysis | 67 |
| The ROI Dashboard and Intangible Benefits | 69 |
| Case Study: Intangible Benefits Analysis | 71 |
| Section IV: Selling with ROI | 72 |
| Benefits of ROI to IT Solution Providers | 72 |
| Why is ROI valuable? | 72 |
| Assuring ROI through Service Level Agreements | 73 |
| Selling using ROI | 74 |
| Case Study: Steps to Implementing a Successful ROI Selling Solution | 74 |
| Case Study: ROI Selling Tools | 76 |
| Case Study: Success Factors in an ROI Selling Program for IT Solution providers | 77 |
| Conclusion | 78 |
| Appendix A: Typical ROI Dashboard Framework | 79 |
| Appendix B: Security ROI Model - A Case Study | 80 |
| Appendix C: TCO vs ROI | 94 |
| Appendix D: Before Tax or After Tax Analysis | 96 |
| Appendix E: Glossary | 99 |
| About the Author | 103 |
| Bibliography | 104 |
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