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BUSINESS CASE DEVELOPMENT and RETURN ON INVESTMENT METHODOLOGY for GEOSPATIAL INFORMATION TECHNOLOGY

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BUSINESS CASE DEVELOPMENT and RETURN ON INVESTMENT METHODOLOGY for GEOSPATIAL INFORMATION TECHNOLOGY Presented to: SDI Cost/Benefit ROI Workshop EC Joint Research Centre - Ispra, Italy January 12-13, 2006
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BUSINESS CASE DEVELOPMENT and RETURN ON INVESTMENT METHODOLOGY for GEOSPATIAL INFORMATION TECHNOLOGY Presented to: SDI Cost/Benefit ROI Workshop EC Joint Research Centre - Ispra, Italy January 12-13, 2006 Bob Samborski Executive Director, GITA Aurora, Colorado, USA 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. Who is GITA? GITA Community Infrastructure Government Private International Utilities Private Sector Public Organizations Consultants/SME s System Integrators Software/Hardware Vendors Federal (FGDC, etc.) State County/Regional Local/Public Works Transportation Telecommunications Water/wastewater Electric Oil/Gas ROI Project Co-Sponsors Project Conception Literature Review Users Survey Workbook and Template Development Project Phases Case Studies Development Business Case Development and Return on Investment Methodology Workbook Completion Project Genesis Highly positive response to 2003 GITA Conference Seminar, Using Business Case and ROI to Justify GIT Spending Lack of relevant information in field in general on how to determine ROI for GIT Project Principals Principal Investigators (PI s) Susan Ancel, EPCOR Dave DiSera, EMA, Inc. Nancy Lerner, EMA, Inc. Mary Ann Stewart, MA Stewart Engineering, Inc. Project Advisory Committee Project Objective To develop and document a formal methodology for preparing a business case, including ROI, within utilities and government agencies Project Benefits Standardized and documented methodology for developing GIT business cases Workbook with templates to assist organizations in applying the standards Resource for supporting better GIT investment decisions by utilities and governments Project Rationale Justification for investments comes from business applications BUT GIT benefits are difficult to predict GIT applications are complex investments GIT applications are expensive and can require significant upfront investment GIT competes with scarce funds Managers have to make decisions without complete understanding Project Conception Literature Review Users Survey Workbook and Template Development Project Phases Case Studies Development Business Case Development and Return on Investment Methodology Workbook Completion Susan Ancel, P. Eng. Director Network Services and Operations, EPCOR Water Services Edmonton, Alberta, Canada President, GITA Literature Review Focused on FGDC, GITA, and AWWA sources Literature available typically more project story related vs. ROI focus ROI analysis required for project approvals and post implementation audits Proactive maintenance, mobile applications and multiple department usage initiatives showed increased benefits to the organization Why ROI? Large amounts of money involved Competition with other investment opportunities Ensure full validation of project prior to initiation Identification of opportunities to structure project to achieve interim benefits quicker Detailed documentation to improve milestone and post implementation reviews 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 Shifting ROI Landscape Traditional models were based on labor savings by implementing technology Organizations are much leaner now and often have existing systems, resulting in less incremental benefits available ROI should now focus on the financial statement drivers and corporate strategies Current hot buttons Lean Operations (eliminate waste/shorten cycle times) Compliance Tracking Reliability Centered maintenance Asset Management Optimization of Material GIT Applications Review indicated 12 application areas typical for utilities & government: Automated Map Production and Data Maintenance Engineering, Planning and Design Call Management, Outage Management, Dispatch Emergency Preparedness Field Infrastructure Management Facility Management (Plants, Buildings, Land) Quality of Life, Public Health, Safety and Community Services Development Review, Zoning and Permitting Property Appraisal / Tax Assessment Customer Relationship Management Regulatory Compliance Environmental Quality and Watershed Management Literature Review Sample Matrix Application Application Areas Area Business Business Sectors Sectors Paper Automated Map Production, Data Maintenance, and Data Access Emergency Preparedness and Response/Critical Infrastucture Protection Property Appraisal/Legislative (Voting) Districting/Tax Assessment Quality of Life Management/Public Health and Safety/Community Services Field Infrastructure Management Facility (Plants, Buildings, Grounds, Land) Asset Management Call Management, Outage Management, and Dispatch Customer Relationship Management Engineering, Planning, Design, and Development Development Review/Zoning/Permitting Regulatory Compliance Environmental Quality and Watershed Management Mobility Sewer Water Gas Electric Government International Enterprise Applications 1 X X X X X X 2 X X X X 3 X X X X X 4 X X X 5 X X X X X X 6 X X X X X 7 X X X X X 8 X X X 9 X 10 X X X X X X User Surveys User Surveys Assessment of the types of benefits and costs experienced by respondents in each application area 219 surveys were completed over 12 application areas Many organizations completed multiple surveys Majority of responses from U.S. (63), Canada (16), Australia (4) Single responses from Brazil, Hungary, India, Japan, Netherlands, Nigeria, Portugal and Turkey Respondents by Sector Government (32) Water/Wastewater/Storm (24) Electric (14) Gas (6) Oil & Gas Pipelines (6) Others Transportation, Education, Steam Distribution, Telecommunications, Consulting Survey Results Survey details provided in handout Most common implementations were: Automated Mapping and Data Maintenance (79 projects) Planning/Engineering Design & Construction (29 project) Field Infrastructure Management (28 projects) Emergency Response/Critical Infrastructure Protection (19 projects) Call Management/Outage Management/ Dispatch (16 projects) Environmental Quality/Watershed Management (11 projects) Automated Mapping and Data Maintenance 66% of the projects were in production Most saw benefits in multiple areas Most common benefits: Reduced map production costs More accessible data Eliminate reconciliation tasks Rarer but notable benefit: Avoided liability by providing timely and accurate information to the field Planning, Engineering Design and Construction 61% of the projects were in production Broader spread of benefits Perhaps indicating more single user/department targeted projects in this category Field Infrastructure Management 50% of projects in production Organizations were seeing benefits in multiple areas of productivity, safety, and access to information Very few were sharing common costs with other organizations Emergency Response & Critical Infrastructure Protection 58% of projects in production Majority of benefits in the primary areas of protecting public and critical infrastructure Consolidation of emergency operations centers was being done by some organizations Some saw benefits in claims/insurance management Call Management, Outage Management & Dispatch 47% of projects in production Most focused benefits were around improved customer service/public goodwill followed closely by reduced travel times and duplication of work Opportunities to improve external stakeholder relations were also seen Environmental Quality and Watershed Management 90% of projects in production Primary benefit seen were: Avoidance of fines associated with environmental damage Healthier environment and good citizenship Project Conception Literature Review Users Survey Project Phases Workbook and Template Development Case Studies Development Business Case Development and Return on Investment Methodology Workbook Completion Dave DiSera Executive Vice President EMA, Inc. Honolulu, Hawaii Past President, GITA Workbook Contents Chapter 1. Introduction Purpose of the Workbook GIT Overview GIT As A Core Enabling Technology Business Uses of GIT Taking an Enterprise Approach to Implementing GIT Chapter 2. Basics of ROI Analysis and Business Case Development Project Definition Financial Analysis Strategic Analysis Workbook Contents Chapter 3. GIT Benefits Tangible and Intangible Benefits Capturing Productivity Benefits Calculating Other Tangible Benefits Dealing with Uncertainty Examples of Benefits for GIT Business Uses Chapter 4. GIT Costs Start-up and Operating Costs Sunk Costs Internal Labor Costs Examples of GIT Costs Workbook Contents Workbook Contents Chapter 5. Financial Analysis Project Life and Cash Flow Schedule Time Value of Money (Opportunity Costs) Dealing with Inflation Common Financial Metrics Impact of Recasting Internal Labor Costs Sensitivity Analysis Chapter 6. Strategic Analysis and the Business Case Structure of a Business Case Summary Chapter 7. Research Findings Literature Review Process and Matrix Survey Results Summary and Case Study Findings Template Components Project Set-up Sheet Current Labor Rates Sheet Labor Cost Multiplier Sheet Internal Labor Usage Sheet Internal Labor Cost Sheet Contract and Procurement Cost Sheet Productivity Benefits Sheet Other Benefits Sheet Financial Analysis Sheet Productivity Benefit Detail Sheets Case Study Development Case studies selected from: Literature review Survey responses Industry contacts Collaboration with partners Participants chosen to cover a range of applications/benefits and costs First case study tested templates and approach Case Study Participants Case Studies: City of Cleveland, Ohio USA Washington State Dept. of Transportation,* USA EPCOR, Canada Telus, Canada Honolulu Board of Water Supply, Hawaii USA * FGDC Business Case Action Team Member Participant City of Cleveland, Ohio Enterprise GIS Program Project description: To facilitate efficient and effective delivery of City services by providing easy access to an integrated, cross-departmental system of City-wide geographic-based data, maps and other images. This project evaluates a proposed future investment City of Cleveland, Ohio Project participants included: Water mapping functions Water pollution control mapping functions Cleveland Public Power only feeders mapped Public Safety police, fire, EMS, crime analysis and routing, animal control Public Service roads, bridges, highways, waste collection routing, snow removal, address maintenance Parks Department property maintenance package City Planning Economic Development, Community Development, Health Department Building and Housing inspectors, permitting system City of Cleveland, Ohio Net Present Value (Net Benefits): $27,744,776 Annualized Return on Investment: 2.91% Breakeven Point: 2010 Payback Period (in Years): 5 Inflation Rate: 2.50% Opportunity Cost of Capital: 4.00% Method for Determining Future Years' Cost of Labor (Derived by Applying Average Annual Cost of Living Adjustment to Current Costs): 2.28% City of Cleveland, Ohio Examples of Tangible Benefits Editing and maintenance of utility data = 166,400 hours View and query - research and dissemination of enterprise data = 70,000 hours Permit and inspection support = 444,000 hours Research and data access in the field to support inspectors, operations, and maintenance staff = 298,000 hours Crime analysis = 41,600 hour Asset (Parks) maintenance = 316,360 hours City of Cleveland, Ohio Examples of Intangible Benefits Safe, secure, easy to access data Accurate and reliable data Updated data for existing applications Facilitate development of new applications Ability to route and dispatch field personnel Ability to geographically display and manage financial information Ability to publish data quickly and efficiently via the web Identifying the location of utility assets and hazardous materials Improved ability to locate business and travel times Aerial views for tactical situations and citizen safety Washington State Dept. of Transportation Washington Transportation Framework for GIS (WA-Trans) Project evaluates a proposed future investment Complex case study involving 19 participants, of which only eight were from WSDOT Washington State Department of Transportation (WSDOT) in cooperation with Puget Sound Regional Council, King County Metro, Lincoln County, Spokane County, Walla Walla County, Yakima Valley Conference of Governments, U.S. Bureau of Census Seattle Regional Office, Washington State Department of Fish and Wildlife, and Washington Utilities and Transportation Commission Washington State Dept. of Transportation Project Description: WA-Trans will provide a seamless, statewide transportation location-based data set that includes the best information available about roads, railroads, airports, ferry terminals and routes, port facilities, and non-motorized transportation routes such as bike paths and horse trails. The data will be used to improve transportation planning, analysis and design capabilities not only for WSDOT but also for local and regional organizations across the state. Better transportation planning will ultimately lead to better transportation infrastructure and more effectively utilize existing resources. Washington State Dept. of Transportation Net Present Value: ($2.2 M) Annualized Return on Investment: Currently % Breakeven Point: Break Even To Be Determined Payback Period in Years: Payback To Be Determined Inflation Rate: 2.50% Opportunity Cost of Capital: 5.0% Project Life: 20 Years Washington State Dept. of Transportation Method for Determining Future Years Cost of Labor: Derived by Applying Average Annual Cost of Living Adjustment to Current Costs: 1.50% Total Internal Labor Investment: $3.9M for life of project, ranging from $138K to $254K per year Contract and Procurement Costs (Total External Investment): $4.2M for life of project, ranging from $50K to $1.2M per year Productivity Benefits: $4.1M for life of project. Savings begin 2008 and range from $20K to $463K per year Washington State Dept. of Transportation Examples of Tangible Benefits Reduce amount of time spent gathering and disseminating data for State projects = 38,190 hours Eliminate need for Collision Data and Analysis Branch of TDO to review each accident report to determine jurisdiction = 78,600 hours Increase efficiency of updating segment records in TDO's Travel Analysis HPMS and Functional Class database = 6,240 hours Eliminate research/data acquisition time for Highway Usage Branch of Transportation Data Office to acquire usage data on non-state routes = 7,440 hours Typical GIS Strategic Benefits The most common examples of intangible or broad categories of strategic benefits identified include: Provision of better information for improved decision making Shared data and services More consistent access to data Improved services to citizens/customers Ability to integrate data among other systems Ability to generate new understandings, from the data easier access to data Determining GIS Costs Costs are highly front-loaded on most GIS programs. Consequently, information about all the potential benefits an organization could expect to obtain becomes vital in determining the business case and ROI. NPV ROI Break Even Pay Back Typical GIS Costs 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 reengineering 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 Project Constraints Lack of a business case to obtain funding Insufficient staff or skills to implement and maintain an enterprise GIS Inefficient work practices No enterprise strategy - individual departments developing their own GIS databases and applications Paper data - much of the data is in a form that needs to be converted/migrated Inaccurate data incorporating data of questionable reliability Lack of meta data and standards High cost of legacy system integration Comparison of GITA and FGDC Business Case Initiatives Project Sponsors Objectives GITA s ROI Research Project GITA AWWA Research Foundation FGDC GeoConnections To develop and document a formal methodology for preparing a business case including ROI for GIS initiatives in government and utility organizations. FGDC s Business Case Initiative Steering Committee Secretariat Staff Director Members of FGDC Compile a series of business cases documenting the value of collaborative/shared development and access to geographic data and services by government, business, and academia. Comparison of GITA and FGDC Business Case Initiatives Research Approach Project Phases GITA s ROI Research Project Develop a methodology for estimating the financial value and ROI Tailor the methodology to match the typical application areas and expected costs and benefits of GIS Perform Literature Review Conduct Users Survey Create Workbook, Templates, and Instructions Conduct 5 Case Studies Publish ROI Workbook FGDC s Business Case Initiative Review literature and select current practices Document and publish selected business cases of collaborate development / access to geographic data and services Perform Literature Review Compile results Participate in GITA s Case Study Phase Publish Results Comparison of GITA and FGDC Business Case Initiatives Project Benefits Current Status GITA s ROI Research Project Resource(s) for supporting better GIS investment decisions Standardized and documented methodology for developing GIS business cases Workbook with templates to assist organizations in applying the standards Case Study development underway Workbook in review and will be published once Case Studies are complete Published version targeted for 2006 FGDC s Business Case Initiative Supporting documentation for better GIS investment decisions involving collaborative development and access to geographic data and services Summarizing literature review Participating in GITA s Case Study project (WA State DOT multi-agency effort) Case study status Project Status City of Cleveland, OH USA (Completed) State of Washington DOT, USA (In process) EPCOR, Calgary, AB Canada (Jan. 06) Telus, Canada (Jan. 06) Honolulu Board of Water Supply, HI USA (Jan. 06) Workbook is being finalized for delivery to publishing team Published version targeted for early 2006 Available from GITA and AWWARF GITA will provide more information as the publishing date gets closer Planning next phase of ROI research with current and new partners Questions?
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