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Value Categories and Value Factors
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 different-length 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 investments 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
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Customer upselling and cross-selling
Ease of doing business
Expand into new markets
Provide revenue growth
Improve competitive positioning
Increase market share
Improve negotiating power
First to market
Reduce cycle timesfor example,
Shortening sales cycle times
Reducing time to market for new products/services
Accelerating delivery of products or services to customers
Shortening order-to-cash cycles
Other competitive impacts
Economic value added (business value added): used to assess the qualitative aspects of an investment through providing a numerical figure to IT investments contribution to attaining business and strategic objectives
Strategic value: an index of customer satisfaction with the degree to which the operational product meets strategic business goals
Tactical value: an index of customer satisfaction with the degree to which the operational product meets tactical business goals
Risk Categories and Risk Factors
Category Risk Factors
(Examples shown below) (Examples shown below)
Technology Risk Security
Business Risk Strategic
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External risks: environment, competitors, vendors, suppliers/partners, etc.
Project Risk Milestones
Resource Risk Staff availability