Comparative Methods for Advocating Information Technology Investments
Anthony M. DiMarco
Executive Manager, Enterprise Professional Services
Intergraph Corporation
Abstract
Information systems can improve the quality and timeliness of decisions. Presented are
several approaches to develop business justification for an AM/FM and related systems,
of strategic importance to the utility industry in an era of increasing competition. This
paper will address investment strategies advocated by EPRI (Electric Power Research
Institute), examples of savings realized by utilities, and definition of terms for presenting
a business case to executive management.
Introduction
As technicians, in our enthusiasm to improve on our current methods and business
processes, and improve the efficiency of our companies, we often focus our efforts on
selecting the right technology and then find delight in the technical details of
implementing that technology in the appropriate areas of our businesses. This area of
investigation, the selection and design of the right “tool”, is the realm of the engineer
and computer scientist. However, the best technology will never be implemented in the
practical world of the professional manager and utility executive without a clear and
concise presentation of a sound business case for the investment.
Automated Mapping and Facilities Management, and Geographic Information Systems
are no exception. In fact, due to the sizable costs normally associated with the conversion
of the necessary data into a useable form for the system, AM/FM/GIS systems are large
investments. An AM/FM/GIS is typically a major project expense that cannot be
implemented using discretionary fimds hidden away in some department budget. In
addition to the sheer size of the investment, the benefits have typically been difficult to
quantifi and touted as intangible and strategic. This paper will review a basic approach
for quantizing the usual tangible savings associated with the successful implementation
of such systems, and present an interesting approach advocated by EPRI for quanti~ing
the strategic benefits of such systems as a result of “improved managerial flexibility”.
Undervaluing Information System Benefits
Computer and communications systems, and specifically AM/FM/GIS, must be used to
improve current operations and serve an explicit strategic mission. The improvement in
315?current operations can be quantified, and some examples of what can be accomplished
will be provided in the following sections. The notion that a system serves some explicit
strategic mission leads to the fundamental problem of AM/FIWGIS systems justification.
Economic evaluation based against a non-quantifiable goal, thus the benefit of the
investment can be undervalued.
Information Technology (IT) investments provide cost reductions in the following ways.
IT can decrease the entropy of existing work. In other words, IT can improve individual
and group productivity by providing structure and efficiencies throughout the defined
business process. In addition, IT can reduce the uncertainty of fhture outcomes by
making the process predictable and consistent, thereby improving the quality of the end
product or service. But perhaps most importantly, and most likely to be undervalued, is
the ability of IT to increase management ability to adaptively respond. The idea of
managerial flexibility, is the heightened ability of management to respond to changes in
the environment, and to changes in the competitive playing field.
AM/FM/GIS Tangible Benefit Quantification
The tangible benefits of an AM/FM/GIS can be categorized as labor savings, outside cost
reductions and asset utilization savings. Labor savings are the direct result of automation.
Automation can be thought of as “doing things right”. By improving the efficiency of a
given process, we can reduce the necessary labor, and reduce staffing requirements to
achieve savings in productivity. Outside cost reductions are savings as a result of the
elimination of direct costs to external agencies. Outside cost reductions might include the
elimination of external document reproduction costs or other supplies or services required
in the current process. Asset utilization savings are the benefits that the IT investment
provides evidenced by improving the ability to more effectively utilize existing
investments in plant capacity. An example of asset utilization savings might be the
ability for an electric utility to meet load growth with its existing distribution facilities
and forego additional construction expenditures, all as a result of better engineering
analysis of the distribution system as enabled by the IT investment.
Typical AM/FM/GIS System Cost Benefit Analysis
For atypical AM/FM/GIS system in an electric or gas utility serving 1 million customers,
the costs for a system might be in the range of $2 million for the base hardware and
software, $500,000 for software configuration, application customization and interfaces,
and perhaps $10 million for complete data conversion. This system could cost in the
range of $12.5 million to implement, not counting training cost% other costs Of ch~ge
management and the recurring cost of maintenance, software support and enhancement.
316?Data conversion is still the largest part of the investment and growing as a percentage, as
hardware, software and commercial-off-the-shelf (COTS) software becomes more
available at a lower cost.
The benefits for that same utility, based on benefits achieved in other typical installations,
might break down as a direct labor reduction of 50°/0 in the personnel responsible for
maintaining the facility records, with significant reductions of 50°/0 or more for the time
spent by larger numbers of personnel who access and utilize the information. In a typical
utility of this size, as many as 25 draftsman might be displaced and as many as 250
people might be impacted by the system, affecting 50% of the 10% of their time spent
retrieving and using records, for a net overall 5°/0reduction. Using loaded salaries of
$50,000, the real labor savings could be as high as $1,875,000 annually.
In addition, a typical utility distributes maps electronically can eliminate the outside costs
for map microfilming, and paper and supplies for map reproduction and distribution.
Typically, hundreds of thousands of copies of maps are reproduced and distributed
annually. The materials costs and reduction in outside costs can exceed $100,000
annually.
