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Business Intelligence Applied: Implementing an Effective Information and Communications Technology Infrastructure by Michael S. Gendron

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Introductory Theories

Before we introduce the tools necessary to determine the payoff of specific projects, it is necessary that several introductory theories are presented. This will aid in understanding the tools described in this chapter.

Defining Payoff

Some common methods for determining ICT project payoff and for making decisions are tools based on finance and accounting, economic utility, and statistics. Each of these types of tools is summarized in the following sections. Before discussing these tools, total cost of ownership and the technology curve theory are presented as a basis for applying all of the other tools.

Total Cost of Ownership

Total cost of ownership (TCO) is a financial estimate that includes the direct and indirect costs related to the purchase of any capital item. Direct costs include the purchase of technology, installation, and maintenance. Indirect costs are not directly associated with the purchase of the asset but are real costs that should be included in any financial analysis of technology purchases. These indirect costs include training, cost of outage (either planned or unplanned), cost of security breach (e.g., physical breach, virus or malware breach), cost of disaster preparedness and recovery, floor space, testing, development expenses, eventual decommissioning, and others (see Exhibit 6.1). It is easy to determine direct costs; it is much harder to determine indirect costs. However, it is essential that any necessary and probable indirect ...

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