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July 29, 2002 (Computerworld) -- An automated ROI analysis tool set to debut in September could make it much easier for IT leaders to cost-justify technology investments to top brass.
ValueIT, a Windows-based tool kit from Alinean LLC, a consultancy in Orlando, is effectively three IT budgeting tools in one. The system, which will be priced at roughly $20,000 per seat, is designed to calculate the return on investment of proposed projects, determine which projects offer the greatest financial value, and benchmark IT spending criteria against industry competitors -- such as IT spending per employee and IT spending as a percent of revenue -- using a database of 4,000 U.S. companies across 400-plus industry segments.
A second release of the software in January is expected to offer IT spending benchmark comparisons for 27,000 companies around the world.
One of the software tools, Project ROI, uses templates and building blocks to create a risk-adjusted, discounted cash flow analysis of proposed projects. The software draws upon the "information productivity" model that was conceived by Paul A. Strassmann, former CIO at the U.S. Department of Defense. Strassmann is a former Computerworld columnist who now sits on Alinean's board of directors.
The software is designed to assess how IT spending relates to the overall financial performance of a company, using financial calculations such as economic value added, net present value and internal rate of return.
The software also draws upon a list of roughly 150 "intangible benefits" that IT managers can plug into their ROI calculations, such as labor costs per unit sold, customer retention rates and inventory turns, said Tom Pisello, president and CEO of Alinean. According to Pisello, the software can be used to measure how an IT project contributes to the strategic goals of a company, such as increased revenue, improved worker productivity and higher customer satisfaction.
According to CIOs and analysts who have been briefed on ValueIT, the product should make it faster and easier for IT managers to cost-justify projects to their bosses.
"The vast majority of CIOs I know are not familiar with the current calculation techniques that a CFO is going to be looking for in project justification," said Garrett Grainger, CIO at Dixon Ticonderoga Co., a Heathrow, Fla.-based maker of writing instruments and art supplies. "This tool should give [CIOs] cookie-cutter opportunities to do that."
Among the features that impressed Grainger are the intangible benefits that can be calculated into an ROI analysis.
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