Sunday, November 24, 2013

EA ROI

The 'Hard' ROI has Varies 'Soft' Perspectives.  

ROI for any non-physical/intangible asset is always more an act in creativity than a logical/scientific calculation. Classically, EA delivers value from a long-term strategic alignment perspective. Increasingly, Management expects EA to have a clear calculation of ROI, and get both some quick wins as well as long term benefits.

Enterprise Architects need to make a business case to CIO to use EA. When evaluating EA's KPIs, compare to regular IT project proposal, the case might be more complex, as at many circumstances, the good architecture may help speed up other projects via better integration or orchestration. The ROI may have to be estimated, if it can not be calculated precisely, as too many things are happening all at the same time to be able to successfully isolate / attribute the effect of EA on the outcomes achieved.

One of the activities or tasks EA performs will be that of doing the ROI analysis for each and every initiative that comes under its purview. That is considered as one of the governance functions. In trying to keep the initiatives aligned with the organizational mission. It must take into account at high level, the costs that would be incurred for the initiative (including that of efforts by the EA team), Capital, LOE, etc on the costs side. The reduction in OpEx, additional revenues the initiative enables. From that perspective EA LOE is included into each of the initiative ROIs.

One of the methods used to estimate/calculate the ROI is cost avoidance. If the organization can increase the effective revenue without an increase in the organizations staff or cost investment then the ROI is the difference. You can also draw on the experience of others in estimating the reduction in cost through avoided duplication, and increase in benefits through redirecting to other valued initiatives.

EA ROI calculation also depends on case by case: Are you looking for a method of calculating ROI of an EA to the business as a whole or ROI of ‘doing some EA work’ for a specific project/system delivery? Also not everything that EA does can be measured by solutions implemented like the documentation of the as-is and to be process, improvement in ways of working due to EA, better decision making by stakeholders etc all these cannot be linked to implemented solution

From investment perspective, the following EA ROI estimation formula provides certain level of knowledge to help management understand the potential benefit via investing EA, still, it’s just an estimation, and not one size fitting all magic formula. Assess the difference between the base case (no EA) and the proposal (with EA) as follows:
1). Base case : EA cost = $0, investment in IT initiatives over 5 years ($x), benefits realized ($y)
2) Proposal : EA cost =$a, investment in EA planned IT initiatives over 5 years ($b), benefits realized ($c)
3) ROI = Benefits [ $(c-y)m + $(x-b) - $a ] / Costs [ $a ]
 
So the balanced score board for EA may include: Forecast benefit, project cost (hard dollar & soft dollar), map benefit/cost projection., etc. Better timeliness of reporting to tune operations and reduce waste, or controlled reduction of losses through better modeling of business risk with a formula to calculate the return on investment in technology-based loss controls at key points. 

EA’s value is based on its practicality, EA needs to be business driven and customer-centric, one could gather ROI for solutions implemented as a result of EA analysis, but just building an EA that sits on a shelf has no ROI.







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