IT Portfolio Management Step-by-Step: Unlocking the Business Value of Technology

5.11. APPENDIX 5A Value Categories and Value Factors

• Financial

  • Net present value: the sum of the annual net savings and other tangible benefits, which have been discounted by an estimated interest or hurdler rate that is commensurate with the risk (grow, run, and transform investment categories should have different hurdle rates to reflect their varying levels of risk). The value in using NPV is that the effects of time and the cost of money are made consistent, thus enabling products of differentlength development times and variable payback periods to be compared.

  • Return on investment: the sum of cash inflows divided by the sum of all cash outflows for a given period of time.

  • Payback period: the amount of time that must pass before the benefits exceed the costs of the investment. When the payback period is expressed in years as the development cost divided by the annual benefit, it is the reciprocal of the investment's return on investment. Most companies have established payback period requirements. Companies are looking for accelerated payback periods of less than a year.

  • Cost avoidance: expressed by avoiding payment to external entities

  • Revenue growth

  • Cost reduction

• Strategic importance

  • Business/strategic fit

  • Customer retention

  • Customer growth

  • Customer upselling and cross-selling

  • Strategic alignment

  • Compliance

  • Revenue growth

  • Ease of doing business

  • Fulfill commitments

  • Expand into new markets

  • Provide revenue growth

  • Improve competitive positioning

  • Increase market share

  • Improve negotiating power