| Topic 5 |
| Evaluating IT Investments and Projects |
| Simple ROI |
| Company XYZ is investing in new technology, resulting in the following costs, savings and revenue: |
| | Costs: |
| | Equipment | 135,000 |
| | Training | 7,000 |
| | Annual Support | 4,000 |
| | Savings: |
| | Personnel | 6,000 |
| | Additional revenue | 4,500 |
| | ROI | 7.2% | (savings + income) / cost |
| Do you have enough information to recommend this project? Why or why not? What advantages / disadvantages exist with using ROI? |
| Response: |
| NPV, IRR, Payback |
| You are comparing 2 projects with the following cash flows. Which would you recommend, based upon NPV with a 10% discount rate? |
| | PROJECT A | | | PROJECT B |
| | 0 | -22500 | | 0 | -20000 |
| | 1 | 6000 | | 1 | 10000 |
| | 2 | 6000 | | 2 | 8000 |
| | 3 | 6000 | | 3 | 2000 |
| | 4 | 6000 | | 4 | 500 |
| | 5 | 6000 | | 5 | 500 |
| | NPV | $ 245 | | NPV | $ (2,143) |
| | IRR | 10% | | | 3% |
| | Payback | 3.8 | years | | 3.0 | years |
| Which project would you recommend and why? Describe advantages / disadvantages of each of the valuation techiniques in the example. |
| Response: |
| Cost / Benefit |
| ABC Co is considering a project that will result in the following costs and potential productiivity improvements: |
| | New Volume | | 30,000 |
| | Old Volume | | 35,000 |
| | Current Staffing Level | | 20 |
| | Staff Savings | | (3) |
| | Average Personnel Cost per FTE | | $ 30,000 |
| Interpret the result of a staff savings of 3 and convert to a financial figure. |
| Response: |
| GOAL Co is considering a new inventory forecasting system that will result in the following costs and inventory savings: |
| | System Cost | | | 180,000 |
| | Inventory Reduction | | | 500,000 |
| | 1% Reduction in Inventory Damage per Quarter | | | 20,000 |
| | Reduction in Borrowing Costs @ 5% | | | 25,000 |
| | TOTAL Annual Savings | | | 45,000 |
| | Payback | | | 4 | years |
| Explain the rationalization for the numbers used and approving this investment. |
| Response: |
| The IT team at GOAL Co is developing new systems to improve productivity, with the following expected return on time invested: |
| | FTE on Team | | | 20 |
| | Weeks Required for Change | | | 7 | per FTE |
| | Total Time Investment | | | 140 |
| | Work Weeks per Year | | | 44 |
| | Savings in Future Development Times | | | 10% |
| | Return on Time Spent | | | 132 | man-weeks |
| How would you explain the result to GOAL Co's management team? |
| Response: |
Loic@1313
MIS-640-RS-CLC-Evaluating-IT-Investments-and-projects_Q.xlsx
