How To Accurately Determine An IT Project's Value?
Unlock the secrets how to accurately determine an it project's value? with our comprehensive guide! Discover expert strategies and practical tips to align your project goals, measure ROI effectively, and make informed decisions.
Author:Suleman ShahReviewer:Han JuFeb 22, 202414.6K Shares407.6K Views
The cost of the solution and the business model of the deployed solution are the two primary factors to take into account before calculating the ROI or ROV. Subsequently, a comprehensive quantitative and qualitative evaluation of several KPIs will conclude the computation.
The challenge of proving an IT project's success has beset every supply chain manager and IT director at some point. The return on investment (ROI) is the most often used metric for assessing and presenting a project's success. To put it briefly, it involves contrasting the projected revenues with the cost of your investment.
Although this ratio is widely utilized, it ignores the intangible aspects of your business solution, such as employee collaboration or stress levels.
What's The Best Way To Determine An IT Project's Likely Value To The Enterprise?
Finding the project's expenses is obviously the first stage in determining whether you want a ROV or ROI. It's crucial to consider both the "hidden costs," which come from using the solution over time and are sometimes overlooked, and the "transparent costs," such as license fees or monthly subscriptions.
These expenses will vary according to the project and kind of solution. Compared to a cloud solution, which requires little to no technical installation, an on-premise solution will have more hidden costs.
Hidden And Visible Costs, The Iceberg Theory
Hardware
acquiring SQL licenses, personal servers, and related parts
IT staff
To maintain an on-premise solution, you'll need staff members who will be dedicated to its support, such as administrators, users' PC installers, database specialists, and IT staff.
Scalability
Due to the high degree of solution customisation, an on-premise product is unlikely to come with automated scalability or free release upgrades at the time of purchase.
In the event that your business experiences rapid growth (such as the purchase of a new market), modifying the current architecture using an on-premise solution will prove to be more challenging.
It is true that increasing the power of your server will result in a mitigation and shift procedure, non-regression testing of the installed material, and service interruptions. Scalability, or the ability to adjust power to suit your needs, is made simple and quick for users thanks to the cloud's agility (about a minute of disruption).
Customization and Implementation
On-premise systems typically require more time for customization and deployment. We are talking more about configuration than implementation for a cloud solution with minimal modification, which translates into a quicker project.
Training
The cost of training your teams (time spent, training sessions, etc.) must be considered when you decide to deploy a new solution within your firm, whether it is an on-premises or cloud solution. Certain tools, like Colibri,can cut down on the amount of time spent on training; the risk of going over budget is reduced because training expenses are controlled and included in a package.
Release upgrade
Because your prior version was customized, the newest version of an on-premise system is unlikely to work for your company when it becomes old. You will need to switch solutions or start a new project with non-regression in order to obtain the most recent version.
Additionally, there's a chance you'll have to pay for additional licenses. When using cloud solutions like Colibri, customers can be guaranteed they will always receive the most recent version (this also applies to release upgrades) at no extra cost to them.
Maintenance
Corrective apps and maintenance are shared by all clients via cloud technologies. Therefore, upon reporting a bug, it will be fixed and made available to everyone. It's not so easy for on-premise applications because every client has a different solution. Furthermore, for on-premise solutions, an IT team typically needs to set up corrections, follow protocol, and create a service intervention.
Price indexation
costs for cloud solutions are often assessed annually. As a result, there's a chance that your subscription will rise. Cloud editors typically include a condition in the contract controlling the price (e.g., the price will follow the Syntec index) in order to grant visibility. Furthermore, since cloud editors prioritize fidelity, it makes sense that they wouldn't want to significantly raise their rates.
It is crucial to take the time to analyze both the direct and indirect expenses of a project when determining its overall costs, but this is not the only factor to take into account.
The Business Model
When figuring out your ROI or ROV, it's crucial to comprehend the business model of your solution in addition to the expenses.
Selecting a cloud solution means that although the initial outlay is minimal or nonexistent, you will be required to pay a recurring membership fee. However, the risk of the solution not meeting the needs is increased because the cost of entry for an on-premise solution is much higher. There are typically annual maintenance fees that are calculated as a proportion of the licenses obtained (typically 20%), rather than subscription fees per se.
The Value That A Certain Company Model Adds
Having a certain business model might also be beneficial to your company. For instance, a small and rapidly expanding business (SME) will likely choose a cloud solution over an on-premise solution, which has a greater initial investment cost and less long-term scalability.
Cloud solutions are more cost-effective and scalable. When determining the ROV, consideration must be given to the value that arises from selecting a particular business model.
Associated Risks
There are risks related to the selected business model that must also be included in the ROV computation.
It will take longer to implement an on-premise solution than a cloud solution (without customization or technical installation) due to the customisation opportunity and complexity. Implementing an on-premise system can take anywhere from six months to a year; with a cloud solution, this time can be shortened to two to four months.
Furthermore, these solutions run the danger of experiencing a tunnel effect due to the licencing business model's prolonged project duration. The solution might not meet the needs of the users if the business environment changes while the project is underway.
It will be more difficult to switch solutions than it is with a cloud solution due to the high cost of licenses. While determining the risks and return on investment (ROV), SaaS editors may also want a commitment time, which ranges from one to three years.
What Makes This Approach So Effective?
This approach stands out for its effectiveness due to its comprehensive yet accessible nature. By breaking down the process of determining an IT project's value into clear steps, it simplifies what can often seem like a daunting task. Moreover, it empowers readers by providing them with practical tools and strategies they can implement immediately.
Furthermore, the approach emphasizes the importance of informed decision-making backed by thorough analysis. By guiding readers through the identification of key metrics and the execution of cost-benefit analyses, it equips them with the skills needed to make strategic choices that align with their organizational objectives.
The effectiveness of this approach lies in its ability to demystify a complex topic, provide actionable insights, and ultimately enable individuals and businesses to maximize the value of their IT projects.
What Tools Can Be Used To Help Estimate Likely Project Value?
Several tools can aid in estimating the likely value of an IT project:
1. Financial Modeling Software
Utilize financial modeling software like Microsoft Excel, Google Sheets, or specialized tools such as QuickBooks or FreshBooks to create detailed projections of costs, revenues, and potential returns on investment (ROI).
2. ROI Calculators
Many online ROI calculators are available that allow you to input project costs and anticipated benefits to estimate the potential return on investment. These calculators often provide insights into payback periods, net present value (NPV), and internal rate of return (IRR).
3. Project Management Software
Platforms like Asana, Trello, or Microsoft Project offer features to track project progress, resource allocation, and costs. By inputting data on expenses, timelines, and expected outcomes, these tools can help in evaluating project value.
4. Data Analytics Tools
Tools like Tableau, Power BI, or Google Analytics can provide valuable insights into user behavior, market trends, and performance metrics. By analyzing data, you can better understand potential impacts and outcomes of IT projects.
5. Risk Management Software
Solutions such as Riskalyzeor Risk Management Software by RiskWatchallow you to assess potential risks associated with IT projects. Understanding and mitigating risks are essential for accurately estimating project value.
6. Scenario Analysis Tools
Tools that facilitate scenario analysis, such as Monte Carlo simulation software or decision tree analysis tools, can help in evaluating different potential outcomes and their associated probabilities, providing a more nuanced view of project value.
What's The Biggest Mistake IT Leaders Make When Estimating Project Value?
IT leaders can fall into several traps when estimating project value, but some of the most common and impactful mistakes include:
1. Focusing Solely On Financial Metrics
While essential, solely focusing on cost savings, ROI, or revenue increase risks overlooking important intangible benefits like improved customer satisfaction, increased agility, or reduced risk. This can lead to underestimating the project's true value and missing opportunities for broader benefits.
2. Ignoring Stakeholder Perspectives
Neglecting to involve key stakeholders in the value assessment can lead to misaligned expectations and potential resistance to the project. Stakeholders often possess valuable insights into potential benefits and risks that might be overlooked by technical teams.
3. Lack Of Data-driven Approach
Relying solely on gut feeling or past experience for estimations can lead to inaccurate and biased assessments. Leveraging historical data, industry benchmarks, and relevant metrics helps build a more objective and defensible case for the project's value.
4. Failing To Consider Long-term Impact
Concentrating solely on short-term benefits like immediate cost savings might neglect the project's potential to contribute to strategic goals like innovation, increased market share, or enhanced differentiation. Evaluating the long-term impact provides a more comprehensive view of value.
5. Static And One-time Estimations
Treating the value assessment as a one-time exercise at the beginning of the project can be misleading. The project context and its potential value can evolve over time. Continuous evaluation and refinement of the value assessment ensure it remains relevant and reflects changes.
6. Overcomplicating Or Underestimating The Process
Some IT leaders might fall into the trap of overcomplicating the value assessment with excessive tools and methodologies, leading to delays and confusion. On the other hand, underestimating the importance of a thorough assessment can result in inaccurate estimations and missed opportunities. Finding the right balance is crucial.
7. Lack Of Communication And Transparency
Failing to communicate the value assessment clearly and transparently to stakeholders can foster misunderstanding and resistance. Sharing the rationale behind the estimated value builds trust and encourages buy-in from key decision-makers.
Project Value - Measuring The Outcome At The Project Level
Determining the value of a project at the outcome level involves assessing the tangible and intangible benefits it delivers. This comprehensive evaluation goes beyond financial metrics to encompass various aspects such as stakeholder satisfaction, organizational impact, and strategic alignment. Here's a breakdown of key considerations in measuring project value at the outcome level:
- Financial Performance -Analyze financial metrics such as return on investment (ROI), net present value (NPV), and cost savings achieved through the project. This involves comparing actual costs incurred with projected benefits to gauge the project's financial success.
- Stakeholder Satisfaction -Solicit feedback from project stakeholders to assess their satisfaction levels with the project outcomes. This could include end-users, clients, team members, and other relevant parties. Understanding stakeholder perceptions provides insights into the project's effectiveness in meeting expectations and addressing needs.
- Quality and Performance -Evaluate the quality of deliverables and the project's performance against predefined benchmarks and standards. Assessing factors such as reliability, functionality, and efficiency helps determine the extent to which the project meets performance objectives.
- Strategic Alignment -Assess the degree to which the project aligns with organizational goals and strategic priorities. Consider how the project contributes to long-term objectives, competitive positioning, and overall business strategy.
- Time-to-Value -Measure the time it takes for the project to deliver tangible benefits or achieve its intended outcomes. This involves assessing the project's efficiency in delivering value within the expected timeframe and identifying opportunities for improvement.
- Business Impact -Quantify the broader business impact of the project beyond financial metrics. This could include factors such as market share growth, customer retention rates, competitive advantage, and innovation capacity.
FAQ's About How To Accurately Determine An IT Project's Value?
How Do You Calculate A Value?
The worth of each digit based on its position within the number is referred to as its value. We compute it by multiplying the digit's face value by its place value.
What Is The Best Way To Measure Value?
Using the straightforward formula Value = Benefits / Cost is one strategy. This strategy has the benefit of being measurable and concrete. Throughout the product's life, you can monitor the profit consistently and track how its worth changes over time.
What Is IT Value Management?
Value Management is a planning and evaluation process that stands out from othersdue to its analytical emphasis and systematic approach, which employs a predetermined work plan to attain best value or, when applicable, best value for money.
Conclusion
It makes sense that the first stage in determining the ROI or ROV of a new IT project is to obtain a precise estimate of the costs, taking into account both the visible and intangible costs equally. Analyzing the project's positive or negative value will thereafter be possible thanks to a business model analysis of the selected solution.
The next stage will be to assess KPIs, to determine the initiatives' quantitative and qualitative results.
Jump to
What's The Best Way To Determine An IT Project's Likely Value To The Enterprise?
What Makes This Approach So Effective?
What Tools Can Be Used To Help Estimate Likely Project Value?
What's The Biggest Mistake IT Leaders Make When Estimating Project Value?
Project Value - Measuring The Outcome At The Project Level
FAQ's About How To Accurately Determine An IT Project's Value?
Conclusion
Suleman Shah
Author
Suleman Shah is a researcher and freelance writer. As a researcher, he has worked with MNS University of Agriculture, Multan (Pakistan) and Texas A & M University (USA). He regularly writes science articles and blogs for science news website immersse.com and open access publishers OA Publishing London and Scientific Times. He loves to keep himself updated on scientific developments and convert these developments into everyday language to update the readers about the developments in the scientific era. His primary research focus is Plant sciences, and he contributed to this field by publishing his research in scientific journals and presenting his work at many Conferences.
Shah graduated from the University of Agriculture Faisalabad (Pakistan) and started his professional carrier with Jaffer Agro Services and later with the Agriculture Department of the Government of Pakistan. His research interest compelled and attracted him to proceed with his carrier in Plant sciences research. So, he started his Ph.D. in Soil Science at MNS University of Agriculture Multan (Pakistan). Later, he started working as a visiting scholar with Texas A&M University (USA).
Shah’s experience with big Open Excess publishers like Springers, Frontiers, MDPI, etc., testified to his belief in Open Access as a barrier-removing mechanism between researchers and the readers of their research. Shah believes that Open Access is revolutionizing the publication process and benefitting research in all fields.
Han Ju
Reviewer
Hello! I'm Han Ju, the heart behind World Wide Journals. My life is a unique tapestry woven from the threads of news, spirituality, and science, enriched by melodies from my guitar. Raised amidst tales of the ancient and the arcane, I developed a keen eye for the stories that truly matter. Through my work, I seek to bridge the seen with the unseen, marrying the rigor of science with the depth of spirituality.
Each article at World Wide Journals is a piece of this ongoing quest, blending analysis with personal reflection. Whether exploring quantum frontiers or strumming chords under the stars, my aim is to inspire and provoke thought, inviting you into a world where every discovery is a note in the grand symphony of existence.
Welcome aboard this journey of insight and exploration, where curiosity leads and music guides.
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