- Applications and ROIs
- Why ROIs Matter
- The Business Case
- Cash Flow ProjectionsThe Business CaseWhy ROIs Matter
- Payback Time
- Breakeven Time
- Net Present Value
- Breakeven Time
- Internal Rate of ReturnBreakeven Time
- Summary of the Terms
- An Example
- Incorporating MMFs into the Financial Case
- Comparing the MMF-based ROI with the Classic ROI
- Taking the Risks into Account
- The Impact of MMF Ordering
Why ROIs Matter
Let's imagine that you, or your client, want to construct an electronic bill payment system for a retail bank. You estimate that it will permit customers to pay bills two to three times faster than via an ATM and ten times faster than standing in line to present a check payment to a bank teller. You intuitively know that this system will make your customers happy and more loyal to the bank. You're excited about writing it and you can certainly justify why you should do so in terms of customer loyalty and ease-of-use benefits.
Unfortunately, none of these reasons or motivations will cut it with the finance department! Although the benefits sound interesting, and perhaps even compelling, they are not in a measurable form. What the finance people are looking for is a number, a dollar figure, to which those benefits translate for the company's bottom line. Finding that figure isn't as easy as it might seem. But it may be one of the most important decisions to be made in the lifecycle of this software development project; one so crucial that it could actually halt the project completely or cause it to be stillborn. This is neither the time nor the place for the developer to fade into the background. It's often here that the success or failure of an application software development project is ultimately determined. And it's not as though financial approval is going away or becoming less important. Over 80% of IT managers surveyed in 2001 reported that the importance of ROI has increased compared to the previous year.
Dataquest reports that in these “trying times . . . IT investments are being looked into more closely than ever before.” They suggest that the best strategy involves finding a business sponsor to back the investments, and that without this type of sponsorship it becomes very difficult to justify the costs of implementing the project.