2. Other Financial Methodologies Pertemuan 9-12
Matakuliah : A Strategi Investasi IT
Tahun : 2009
Other Financial Methodologies Pertemuan 9-12

3. Introduction Considered as advanced financial methods
Requires knowledge and understanding of time value of money and present value
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4. Types of Methodologies
Financial Techniques
Operations Research/Management Science Techniques
Techniques Specifically Designed for IT Evaluation
Other Techniques for IT Evaluation
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5. Financial Techniques Accounting rate of return Breakeven analysis
Cost benefit analysis
Cost benefit ratio
Cost revenue analysis
Internal rate of return
Net present value analysis
Payback period
Profitability index
Return on investment
 See Table 1
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6. Operations research/management science
Analytical hierarchy process
Decision analysis
Delphi evidence
Game playing
Multi-objective, multi-criteria approaches
Simulation
 See Table 2
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7. Techniques for IT investment
Application benchmark technique
Benefit/risk analysis
Cost-value technique
Executive planning for data processing
IT assessment
Information economics
IS investment strategies
Investment portfolio
Process quality management
Return on management
Value analysis
 See Table 3
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8. Other techniques for IT investment
Balanced score card
Cost displacement/avoidance
Cost effectiveness analysis
Critical success factors
Satisfaction/priority surveys
Value chain analysis
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9. Present Value Analysis
Today’s value of future cash flows of an investment (PV) are compared to the cost of investment
NPV is the present value of cash flows minus the initial investment cost
If NPV is > 0 = make investment
 See Table 5 and Table 6
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10. Profitability Index
A ratio that can be used to rank projects when the size of the initial investment varies for alternative investments.
PI = NPV / investment cost
 See Table 7-8
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11. Return On Investment
Technique used in capital budgeting decisions where the rate of return of an investment is compared to the opportunity cost of capital
Opportunity cost of capital is the expected return omitted by investing in technology rather than in equally risky investment in capital market
Return = Profit / investment cost
If return > cost  good investment
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12. ROI strategy for Enterprise Resource Planning
Align ROI to measure criteria that related to the implementation
Assess possibilities for improvement
Identify the opportunities for change
Capture benefits as early as possible during implementation
Pay attention to software modifications
Sequence the implementation activities to better capture the benefits
Build capturing of benefits into the system by making it a routine part of status reports
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13. Internal Rate of Return
Also called discounted cash flow rate of return, is discount rate that makes NPV of project equal zero
If IRR > opportunity cost of capital = good investment
Problems : may be more than one IRR, opportunity cost of capital may not be equal for each cash flow
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