University of Minnesota
Office of Information Technology (OIT)
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Institutional Technology Investment


* OIT is in the process of quantifying the institutional value of its most recent technology implementations and services.  This is a continuous work in progress that illustrates that through collaborations and partnerships with key collegiate areas and business administrative units, technology is supporting business processes by creating efficiencies, effectiveness and cost savings
all while offering a higher quality of service...

Introduction
Return on Investment (ROI) is often used to determine the financial value of a purchase or initiative. Simply stated, ROI answers the question: “Did the investment pay for itselfand to what extent?” “Did it actually create savings?” Ultimately, the University of Minnesota must answer these questions in order to demonstrate responsible stewardship to the its stakeholdersthe local business community and the citizens of the State.

While ROI is considered in University purchases/initiatives, it remains an unscientific concept in both its dialogue and understanding. The intent of this document is to better acquaint the reader with the use of ROI language in the University's Office of Information Technology (OIT) and its business partners, to suggest that a broader understanding and disciplined use of ROI metrics is in the University's best interests, and to show examples of broad OIT technology initiatives and their corresponding ROI metrics as exemplary models where ROI methodology is applied. Finally, it's the writer's hope that the reader will come away with a greater understanding of the quantitative value of some of the University of Minnesota's IT purchases and initiatives.

ROI Defined
For the purposes of this exercise, an "ROI Index" will be introduced and used. This index quantifies the level of investment return based on an elapsed time period since the introduction of the technology/service/initiative. General private industry practice is to quantify an ROI in terms of three years. This document will focus on one-, three-, and five-year ROI metric "snap-shots" for the technologies highlighted. These snap-shots represent a point-in-time view of the accumulated costs and savings for the periods listed above. While this exercise includes running totals, it also includes projections (particularly with the 5-year ROI metric) that are based on current trends and anticipated influencers.

For the purposes of this document, "costs" are quantified as totals and are many times "rounded up" for simplification purposes. Costs include capitol purchases, leases, implementation- and ongoing-labor, licenses, and other identifiable contributors. First-year costs include all purchase and implementation investments in addition to first-year maintenance costs.

For the purposes of this document, "savings" are quantified in terms of recoverable dollars and cost avoidances. Savings can also be measured in terms of worker productivity and when aggregated, a corresponding dollar value of that productivity to the Institution.

The formula used to derive the ROI Index is a simple equation that divides the accumulated savings by the accumulated cost at a prescribed point in time. Hence: Savings/Cost = ROI Index. This index, as mentioned above, is tabulated at the one-, three-, and five-year intervals.

The ROI Index is a number that represents the level to which an investment has paid for itself and is designed to simplify and standardize the ROI communication for the fullest understanding. An ROI Index of “0.5” means that a technology or initiative has recovered 50% of its cost. An ROI Index of “1” means that the investment has paid for itself in wholebut that quantified savings have not exceeded the investment. An ROI Index of “2” means that savings have reached twice the amount of the investment. An ROI Index of “10” equates to savings that are ten-fold the investment.

ROI Applied
The application of this ROI methodology has been practiced as part of the Enterprise Application System project prioritization process but not to the extentor the simplicitythat is suggested in this document. For the purposes of this exercise, general campus-wide technologies will be highlighted and scenarios discussed that will show the institutional impact of the technology/serviceand also the potential for increased efficiency/savings according to the terms and definitions previously explained.

The following list of technologies/services have had the University of Minnesota-centric, collaboratively-developed ROI methodology applied to them based on scenarios that help the reader understand the broad impact of these cost-saving/efficiency initiatives. The list will continue to grow as the method is applied to initiatives/technologies/services that show promise as holding great value to the Institution.