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Assessing intranet cost-benefits
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pixel.gif (807 bytes) Analysing the results

BEFORE YOU CAN MAKE any conclusions from your findings, you’ll need to total up your costs and benefits.

Summarising costs
If your target population is a subset of your organisation’s total intranet population, then you need only need to take a proportion of the costs that are borne centrally. The following costs are likely to be central:

  • server hardware and software
  • the purchase, development, maintenance and upgrades to software applications
  • provision of technical personnel

Remember that you only need to take account of the cost of applications that are required to support your initial intranet implementation.

Summarising benefits
Total up the benefits for each intranet category under the three benefit headings: direct cost savings, labour savings and productivity increases. Before making your calculations, it is necessary to determine the proportion of the target population that is affected by each of the intranet categories. For example, the whole population may be affected by the use of the intranet for information publishing, but only 30% for document management and 40% for workflow. If you don’t make these distinctions, you are likely to over-estimate your benefits.

Comparing costs and benefits
Obviously you will be interested to see whether your benefits do indeed exceed your costs. To do this in a way which reflects the impact on your organisation’s profit and loss account, you should spread your capital costs over the write-off period. You may also decide to reduce the benefits in year one to take account of the time taken to develop and launch the intranet and to train users. Here’s an example of a layout for your analysis:

Benefits

Year 1

Year 2

Year 3

Year 4

Year 5

Information publishing

91346

182693

182693

182693

182693

E-mail

0

0

0

0

0

Document management

0

0

0

0

0

Training

22336

44671

44671

44671

44671

Workflow

22170

44340

44340

44340

44340

Databases/bespoke systems

0

0

0

0

0

Discussion

165459

330917

330917

330917

330917

301311

602622

602622

602622

602622

Depreciation of capital costs
New PCs

6667

6667

6667

0

0

Networking

5000

5000

5000

0

0

Server h'ware & s'ware

16667

20833

25000

12500

12500

Applications

152222

158333

164444

18333

18333

180556

190833

201111

30833

30833

Revenue costs
Editorial/design personnel

30000

30000

30000

30000

30000

Technical personnel

200000

200000

200000

200000

200000

Internet access

2500

2500

2500

2500

2500

Maintenance of bespoke apps

0

95833

95833

95833

95833

Design consultancy

20000

5000

5000

5000

5000

Promotion

10000

2500

2500

2500

2500

Training

15000

3000

3000

3000

3000

277500

338833

338833

338833

338833

Total costs

458056

529667

539944

369667

369667

Profit or loss

-156745

72955

62677

232955

232955

Accumulated profit or loss

-156745

-83790

-21113

211842

444797

This example assumes that information publishing, training, workflow and discussion are implemented, that the write-off period is three years and that year one benefits are 50% of those in subsequent years.

Return on investment
Return on investment is a way of expressing as a percentage the return you have made relative to the amount you have invested:

    ROI = benefits – investment x 100
                    investment

Your investment is the sum of your up-front capital and revenue costs. For the example above, that gives a total of 586667. Your return is calculated as the annual benefits less the ongoing capital and revenue costs. Here’s a completed analysis:

Year 1

Year 2

Year 3

Year 4

Year 5

Benefits

301311

602622

602622

602622

602622

Ongoing capital costs

0

30833

30833

30833

30833

Ongoing revenue costs

232500

338833

338833

338833

338833

Net return

68811

232955

232955

232955

232955

Return on investment (%)

12

40

40

40

40

Accumulated ROI (%)

12

51

91

131

171

Payback period
The payback period is the time it takes to ‘break even’ on your investment, in other words when the accumulated return on investment figure first exceeds 100%. In the example above, the payback period is 39 months, or three months into the fourth year.

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                                                     Fastrak Consulting Ltd, 1998. All rights reserved.                                 Last revised 2/11/98.