Financial and Strategic Analysis

1

Building a Business Case for Shared Geospatial
Data and Services Financial and Strategic
Analysis for a Multi-participant Program
Presented to NSGIC MidYear Conference March 25,
2007
2

• Bob Samborski
• Executive Director, GITA
• Aurora, Colorado, USA
• Mary Ann Stewart
• Strategic Analysis Lead for ROI Project

3
Who is GITA?
The Geospatial Information Technology
Association (GITA) is a non-profit association
focused on providing education and information
exchange on the use and benefits of geospatial
information and technology worldwide.
4
Who is GITA?
Oil/Gas Electric Water/wastewater Telecommunications Transportation Local/Public Works County/Regional State Federal (FGDC, etc.) Software/Hardware Vendors System Integrators Consultants/SMEs Public Organizations Private Sector Utilities
5
ROI Project Co-Sponsors
6
Project Phases

• Project Conception
• Literature Review
• Workbook and Template Development
• Case Study Development
• Business Case Development and Return on
  Investment Methodology

7
Project Genesis

• Highly positive response to 2003 GITA Conference
  Seminar, Using Business Case and ROI to Justify
  GIT Spending
• Lack of relevant information on determining ROI
  for GIT
• Request from FGDC to extend methodology and
  templates for multi-agency projects

8
Project Principals

• Principal Investigators (PIs)
• Susan Ancel, EPCOR
• Dave DiSera, FICOH
• Nancy Lerner, EMA, Inc.
• Mary Ann Stewart, MAStewart Engineering LLC
• Project Advisory Committee

9
Project Objective

• To develop and document a formal methodology for
  preparing a business case, including ROI, within
  utilities and government agencies
• To extend this methodology to multi-agency
  projects
• To develop a multi-agency case study

10
Project Benefits

• Standardized and documented methodology for
  developing GIT business cases
• Workbook with templates to assist multi-agency
  projects in applying the standards
• Resource for supporting better GIT investment
  decisions by agencies engaged in complex projects

11
Project Rationale

• Justification for investments comes from business
  applications

BUT

• GIT benefits are difficult to predict
• GIT applications are complex and may require
  significant upfront investment
• Multi-agency projects require a different
  approach to analysis
• Managers often make decisions with incomplete
  understanding

12
Workbook Contents

• Chapter 1. Introduction
• Why read this book?
• Why read about agencies outside my sector?
• Who should use this workbook?
• How to use the workbook and accompanying CD
• Why build shared data and services business case?
• Chapter 2. Overview of Business Case
• Business Uses of GIS
• Taking a multiple agency approach
• Project Definition
• Financial Analysis
• Strategic Analysis

13
Workbook Contents

• Chapter 3. GIT Benefits
• Tangible and Intangible Benefits
• Capturing Productivity Benefits
• Calculating Other Tangible Benefits
• Internal and External Benefits
• Dealing with Uncertainty
• Examples of Benefits for GIT Business Uses
• Chapter 4. GIT Costs
• Start-up and Operating Costs
• Sunk Costs
• Internal Labor Costs
• Examples of GIT Costs

14
Workbook Contents

• Chapter 5. Financial Analysis
• Project Life and Cash Flow Schedule
• Time Value of Money (Opportunity Costs)
• Dealing with Inflation
• Common Financial Metrics
• Impact of Recasting Internal Labor Costs
• Sensitivity Analysis
• Chapter 6. Strategic Analysis and the Business
  Case
• Interpreting a Business Case
• Strategic Benefits as Intangibles
• Chapter 7. Research Findings
• Literature Review Findings
• Case Study Findings

15
Template Components

• Project Set-up Sheet
• Current Labor Rates Sheet
• Labor Cost Multiplier Sheet
• Internal Labor Usage Sheet
• Internal Labor Cost Sheet
• Contract and Procurement Cost Sheet
• Productivity Benefits Sheet
• Other Benefits Sheet
• Financial Analysis Sheet
• Productivity Benefit Detail Sheets

16
GIT is a Critical Investment
GIT is a Critical Investment
17
Why ROI?

• Large amounts of money involved
• Competition with other investment opportunities
• Ensure full validation of project prior to
  initiation
• Identification of opportunities to structure
  project to achieve interim benefits quicker
• Detailed documentation to improve milestone and
  post implementation reviews

18

Investment Analysis Is a Fiduciary
Responsibilityand Public Duty

19

Financial Analysis Quantifies Investment Value

20
Shifting ROI Landscape

• Traditional models were based on labor savings by
  implementing technology
• Organizations are much leaner now and often have
  existing systems, resulting in less incremental
  benefits available
• ROI should now focus on the financial statement
  drivers and corporate strategies
• Current hot buttons
• Lean Operations (eliminate waste/shorten cycle
  times)
• Compliance Tracking
• Reliability Centered maintenance
• Asset Management
• Optimization of Material

21
When Should You Do ROI?

• Strategy Development
• Project Initiation
• Project Detailed Design completion
• Project completion
• When in operation for some time
• When assessing replacement of the tool

22

Quantitative Measures
23
Each Measure Has a Best Use

• NPV
• Best overall measure of financial value
• Higher NPV always identifies better investment
• ROI
• Shows whether benefits outweigh costs
• Inappropriate for comparing investments (can have
  high ROI with low NPV, etc.)
• Breakeven Point and Payback Period
• Shows whether benefits outweigh costs
• Important political measure
• Inappropriate for comparing investments

24

Investment Analysis Process
25
Describe Quantify All Costs

• Capital/One-time Costs
• Hardware Software
• Data Acquisition Conversion
• Start-up Services
• Operating/Ongoing Costs
• New Hires
• Salary Adjustments
• Hardware Software Maintenance
• Training
• Support Services
• Data License Fees

26
Typical GIS Costs

• Business case analysis
• Project management
• Delivery and installation
• Business process re-engineering
• Transitional costs (i.e. parallel running of old
  and new systems)
• On-going cost implications (i.e. staff costs and
  consumables)
• Data purchase
• Data capture, data conversion
• Data re-survey and validation
• Training, human resources planning, skills
  development and re-skilling

• Hardware integration with pre-existing computing
  infrastructure
• Evaluation, selection, acquisition and
  installation of software
• Undertaking requirements/needs analysis
• Contractual aspects
• systems customization
• Applications portfolio development
• Interfacing to other data servers and
  operational systems

27
Applications Drive Benefits

• Increase productivity
• Add revenue source/enhance collection
• Reduce fee/fine
• Eliminate a service, building, or process

28

Strategic Analysis Looks Beyond The Money
Competitive Advantage
Safety
Goodwill
Can WeStay in Business?
Morale
Regulatory Compliance
Growth
Clean Environment
29

Literature Review

• Focused on FGDC sources
• Qualitative information more common than
  quantitative
• Clarified the need for common methodology for
  financial analysis of multi-agency projects
• Clarified the need for common approach to
  strategic analysis for multi-agency project

30
Case Study Development

• Case study selected from pool of original studies
• WA-Trans chosen to cover a range of applications,
  benefits and costs
• Refined templates and approach
• In-depth interviews with participating agencies
• Financial analysis based on individual and
  combined business cases

31
WA-Trans

• Washington Transportation Framework for GIS
  (WA-Trans)
• Project evaluates a proposed future investment
• Complex case study involving 19 participants
• WSDOT in cooperation with Puget Sound Regional
  Council, Sound Transit, King County Metro,
  Lincoln County, Spokane County, Walla Walla
  County, Yakima Valley Conference of Governments,
  U.S. Bureau of Census Seattle Regional Office,
  Washington State Department of Fish and Wildlife,
  Washington Department of Natural Resources, and
  Washington Utilities and Transportation Commission

32
WA-Trans Project Description

• WA-Trans will provide a seamless, statewide
  transportation location-based data set that
  includes the best information available about
  roads, railroads, airports, ferry terminals and
  routes, port facilities, and non-motorized
  transportation routes such as bike paths and
  horse trails.
• The data will be used to improve
  transportation planning, analysis and design
  capabilities not only for WSDOT but also for
  local and regional organizations across the
  state. Better transportation planning will
  ultimately lead to better transportation
  infrastructure and more effectively utilize
  existing resources.

33
WA-Trans Total Project Summary

• Net Present Value 17.87 M
• Annualized Return on Investment 10.9
• Breakeven Point 2011
• Payback Period 4 years
• Inflation Rate 2.50
• Opportunity Cost of Capital 5.0
• Project Life 20 Years

34
WA-Trans Total Project Summary

• Method for Determining Future Years Cost of
  Labor, Derived by Applying Average Annual Cost of
  Living Adjustment to Current Costs 1.50
• Total Costs (internal and external) 8.2M for
  life of project, ranging from 203K to 1.6M per
  year
• Benefits 26M for life of project, ranging from
  67K to 1.6M per year

35
WA-Trans Total Project vs. DOT Standalone Project

• DOT alone
• NPV 255K
• ROI 0.17
• Breakeven point 2025
• Payback period 18 years

• All agencies
• NPV 17.87M
• ROI 10.9
• Breakeven point 2011
• Payback period 4 years

36
What Happened to WA DOT?

• DOT assumed majority of cost
• 2007 582K of 593K
• 2008 1.2M of 1.51M
• 2009 1.37 M of 1.64M
• 2010 1.02M of 1.02M
• DOT received modest benefits
• 2007 35K of 57K
• 2008 59K of 1.5M
• 2009 114K of 1.6M
• 2010 454K of 1.2M

37
WA DOT Breakeven Point
38
Multi-Agency Breakeven Point
39
WA-Trans Tangible Benefits

• Examples of DOT Benefits
• Reduce amount of time to gather data to scope a
  project in Planning Department 1260 hours/yr
• Eliminate need for Collision Data and Analysis
  Branch of TDO to review each accident report to
  determine jurisdiction 5240 hours/yr
• Eliminate research/data acquisition time for
  Highway Usage Branch of Transportation Data
  Office to acquire usage data on non-state routes
  80 hours/yr
• Cost avoidance on purchase of commercial
  centerline data 30K/yr

40
WA-Trans Tangible Benefits

• Examples of other agency benefits
• Utility and Transportation Commission eliminate
  time resolving address and geocoding errors 240
  hours/yr
• Sound Transit reduce customer service rep
  responses 208 hours/yr
• Dept. of Natural Resources reduce time compiling
  trail and forest data for public lands quad map
  series 1000 hours/yr
• Five largest counties eliminate edge matching
  efforts 1700 hours/yr

41
GIS Strategic Benefits

• Typical strategic benefits from GIS projects
  include
• Shared data and services
• Improved accuracy, consistency, timeliness of
  data
• Better access to data
• Improved services to citizens
• Ability to integrate data among other systems
• Information for improved decision making
• Ability to generate new meaning from the data

42
WA-TRANS Strategic Benefits

• Data sharing across county boundaries
• Eliminates need for edge matching
• One source for data eliminates searches and
  redundant data collection
• Provides means for tracking and communicating
  progress of projects
• Venue for counties and local government to
  maintain data
• Reduced liability due to improved accuracy

43
WA-Trans Strategic Benefits to Large Counties

• Have a well-established GIS
• No significant change to data maintenance program
• Improved data sharing with other counties
• Conflation of disparate data for use in analysis
  and decision making
• Streamlined process for planners, replacing
  manual data review

44
WA-Trans Strategic Benefits to Small Counties

• New to GIS, may have nothing in place
• Benefit from common data standards
• Benefit from geodatabase design available for
  their use
• Use of better control points from counties for
  other agency flyovers improves accuracy

45
Functional Class Strategic Benefits

• WA-TRANS sponsors development of accurate
  functional class network
• Provides accurate tracking of functional class
  change process
• Relates to lost opportunities for Federal funding
• Helps resolve disagreements regarding existing
  classification
• Assists in correct determination of urban vs.
  rural miles

46
Economic Development Strategic Benefits

• FAST Corridor and international freight
  development
• Need consolidated intermodal data access
• Port development dollars not being spent for WA
  (10B for LA)
• Provide regional context for decision making for
  huge freight projects

47
Homeland Security/Disaster Recovery Strategic
Benefits

• WA experiences significant flooding and wildfires
• Constrained transportation corridors
• Faster and better recovery efforts with seamless
  road network
• WA-TRANS makes difference between data and
  missing/outdated data for E911
• FEMA Region 9 address range issues for rural
  counties

48
Census Bureau Strategic Benefits

• Census does not have mandate to be a data
  provider
• Does not plan to continue to update road network
• Access to maintained data essential
• WA-TRANS means counties wont have to interface
  with Census as supplier or consumer of data

49
Comparison of GITA and FGDC Business Case
Initiatives
GITAs ROI Research Project FGDCs Business Case Initiative
Project Sponsors GITA AWWA Research Foundation FGDC GeoConnections Steering Committee Secretariat Staff Director Members of FGDC
Objectives To develop and document a formal methodology for preparing a business case including ROI for GIS initiatives in government and utility organizations. Compile a series of business cases documenting the value of collaborative/shared development and access to geographic data and services by government, business, and academia.
50
Comparison of GITA and FGDC Business Case
Initiatives
GITAs ROI Research Project FGDCs Business Case Initiative
Research Approach Develop a methodology for estimating the financial value and ROI Tailor the methodology to match the typical application areas and expected costs and benefits of GIS Review literature and select current practices Document and publish selected business cases of collaborate development / access to geographic data and services
Project Phases Perform Literature Review Conduct Users Survey Create Workbook, Templates, and Instructions Conduct 5 Case Studies Publish ROI Workbook Perform Literature Review Compile results Participate in GITAs Case Study Phase Publish Results
51
Comparison of GITA and FGDC Business Case
Initiatives
GITAs ROI Research Project FGDCs Business Case Initiative
Project Benefits Resource(s) for supporting better GIS investment decisions Standardized and documented methodology for developing GIS business cases Workbook with templates to assist organizations in applying the standards Supporting documentation for better GIS investment decisions involving collaborative development and access to geographic data and services
Current Status Six Case Studies completed Workbook published in March 2007 Case Study updates planned for distribution via ROI Community of Practice WA-Trans Case Study completed Multi-agency version published March 2007 Seminars, webcasts planned to raise awareness
52
Project Status

• AWWARF publication in process
• GITA publication released at GITA Conference
  March 2007
• FGDC publication released at NSGIC March 2007
• Planning next phase of ROI research with current
  and new partners

53

• Questions?