Methods and measures for evaluating applications Application portfolio management

1 methods , measures evaluating applications

1.1 return on investment (roi)
1.2 economic value added (eva)
1.3 total cost of ownership (tco)
1.4 total economic impact (tei)
1.5 business value of (itbv)
1.6 applied information economics (aie)

methods , measures evaluating applications

there many popular financial measures, , more metrics of different (non-financial or complex) types used evaluating applications or information systems.

return on investment (roi)

return on investment 1 of popular performance measurement , evaluation metrics used in business analysis. roi analysis (when applied correctly) powerful tool evaluating existing information systems , making informed decisions on software acquisitions , other projects. however, roi metric designed purpose – evaluate profitability or financial efficiency. cannot reliably substitute many other financial metrics in providing overall economic picture of information solution. attempts @ using roi sole or principal metric decision making regarding in-formation systems cannot productive. may appropriate in limited number of cases/projects. roi financial measure , not provide information efficiency or effectiveness of information systems.

economic value added (eva)

a measure of company s financial performance based on residual wealth calculated deducting cost of capital operating profit (adjusted taxes on cash basis). (also referred economic profit .)

formula = net operating profit after taxes (nopat) - (capital * cost of capital)

total cost of ownership (tco)

total cost of ownership way calculate application cost on defined period of time. in tco model, costs hardware, software, , labor captured , organized various application life cycle stages. in depth tco model helps management understand true cost of application attempts measure build, run/support, , indirect costs. many large consulting firms have defined strategies building complete tco model.

total economic impact (tei)

tei developed forrester research inc. forrester claims tei systematically looks @ potential effects of technology investments across 4 dimensions: cost — impact on it; benefits — impact on business; flexibility — future options created investment; risk — uncertainty.

business value of (itbv)

itbv program developed intel corporation in 2002. program uses set of financial measurements of business value called business value dials (indicators). multidimensional program, including business component, , relatively easy implement.

applied information economics (aie)

aie decision analysis method developed hubbard decision research. aie claims first scientific , theoretically sound method builds on several methods decision theory , risk analysis including use of monte carlo methods. aie not used because of complexity.