Financial Intelligence for IT Professionals: What You Really Need to Know About the Numbers

Part Six

TOOLBOX

ROI OF AN IT PROJECT

Now we want to analyze a real-world IT investment using the tools from the previous chapter. This is an example of the kind of analysis you might actually be expected to do.

We’ll assume you are considering investing in a new order-processing system, and we’ll walk you through each step. First, we will identify the initial cash outlay required to make the investment. Second, we will project the cash flows generated by the new system. Third, we will use the evaluation tools—payback, NPV, IRR, and PI—to decide whether this new system makes sense.

Step One

The initial questions are these: What investments will be required to get the new order-processing system developed? What will be the ongoing costs to support ...