Calculating RoI on IT Projects - An Inescapable Reality

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Calculating RoI on IT Projects- An Inescapable
Reality Gp Capt (Dr) Sanjeev Sood MBBS,MD,PGDHHM
,M Phil(HHSM),AFeISAM,FCGP Hospital Administrator
NABH Empanelled Assessor Gurgaon doc_ssood_at_yaho
o.com
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Why calculate RoI ?

• Aim-
• Value realization
• Techno-economic appraisal
• To convince leadership
• To understand the potential impact on cost and
  revenue generation
• To facilitates investment prioritization by
  making a project-to-project comparison between
  investment options

CIO walking tight rope
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Challenges in Technology Appraisal Deployment

• Capital Intensive
• Successful outcome may be difficult to ascertain
• Interoperability lack of qualified staff for IT
  adoption
• Viewed as a cost overhead rather as an enabler
  differentiator that can transform their
  operations overall productivity.

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Challenges in Technology Appraisal Deployment-2

• Proposal by CIOs on IT projects, such as
  implementation of HMIS/EMRs/PACS met with
  skepticism
• A barrage of questions posed by mgt that needs
  cost justification, critical valuations, RoI,
  DCFs, IRR pay-back period etc.
• CIOs on defensive.

CIO harassed by the queries on RoI, DCF,IRR,NPV
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Economic Appraisal of IT Projects

• Needs systemic analytic approach applying
  knowledge spanning multiple disciplines
• Thus, calculating RoI for CIOs may be an
  inescapable reality which they have to face in
  this era of fiscal accountability

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Using the Simple Paradigm

• IT projects - long gestation period payback
  should be looked at only after 3 - 5 years
• Intangible benefits such as, improving healthcare
  quality, efficiency accessibility, are
  difficult to assign any monetary value
• Certain benefits of IT adoption -coordinated
  efficient care ,extend span beyond the Org
  units due to integrated delivery systems- eg data
  analytics

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Technology Cost/Impact Decision Matrix
Cost Impact Improve No change Worsen
Increase 1. ?? 2.Never 3.Never
No change 4.Always 5. ?? 6.Never
Decrease 7.Always 8.Always 9. ??
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Economic Appraisal Techniques

• Cost-benefit analysis-
• This technique is used to evaluate,
  systematically, multiple objectives actions
  that are not mutually exclusive is applied,
  when all aspects of cost benefit of the
  selected technology can be assigned a monetary
  value.
• The outcome of this analysis is presented in Rs
  terms that enable decision makers to decide in
  favor of alternative that has the lowest cost
  highest benefit.
• Today, the IT architects such as cloud computing,
  virtualization, mobile technologies SOA do
  exactly that, giving maximum value for money.
•  

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Economic Appraisal Techniques-2

• Cost-effectiveness
• Used to evaluate multiple ways (usually mutually
  exclusive alternatives) of reaching a single
  objective e.g., to buy HMIS off the shelf or
  develop customize ones own .
• For many health IT applications, it may not be
  feasible to measure the benefits or outcome in
  financial terms e.g., loss of life or limb cannot
  be precisely assessed benefits of the shortened
  ALOS may not be possible to assess considering
  more no of pts that will be treated on the same
  no of hosp beds .
• In this case, one might estimate the cost
  associated with extending life for addl yr or
  cost of hospitalization/day .The decision makers
  may adopt the technology with lowest cost per
  life year saved or hospital day reduced of
  treatment.

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Economic Appraisal Techniques-3
Cost-utility analysis- Measures interventions
effect on both the quantitative qualitative
aspects of HC, like measuring the quality of life
extended by using tools like QALYs e.g., the
extended yr spent in leading a healthy life
rather than suffering in a hosp.
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Steps in Economic Analysis-A 10 step approach

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Steps in Economic Analysis (Contd)

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Steps in Economic Analysis-3

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Factors affecting ROISince ROI may not factor in
all risk or intangible rewards, it is prudent to
list some of those risks and intangibles that may
impact an IT project Lack of resourcesDeveloper
s or testers may not be available or may not have
the proper skill sets, requiring additional
funding from the company. Dissatisfied
clientThe client or users may be dissatisfied
with the IT solution you delivered and reject it
until its corrected. You may need to add code,
burning up more time, testing, and money. Or, the
solution may not be compatible with current or
future operating systems, platforms, or other
applications. Unsatisfactory executive
commitmentThe executive team may not be fully
committed to the project (e.g., dissatisfaction
with the proposed project budget). Vendor
delaysSometimes, vendors may be unable to
deliver hardware or software when you need it,
impacting your release date and potential revenue.
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Summing Up

• ROI lt 100 should not be undertaken unless there
  are compelling reasons to do so strong
  executive sponsorship for the project
• Accurate IT valuation may not be easy to
  ascertain or ensure failure of an IT project may
  have several causes
• And root cause may lie in people not technology
  per se-selecting technology for inappropriate
  reasons
• Accurate technology appraisal its value
  realization is a complex, data intensive
  challenging process that demands diverse skills
  time by the CIO

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Summing Up-2

• Armed with above knowledge the given analytic
  framework, the CIO is better equipped to put up a
  strong business case convincing argument for IT
  investments
• Supported by a mature visionary leadership,
  he can have a smooth sailing in achieving an IT
  empowered organization as a benefit, also
  empowered patients as a bonus!

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Dr Sanjeev Sood Hospital Administrator
Gurgaon doc_ssood_at_yahoo.com