Calculating RoI on IT

ProjectsAn Inescapable Reality

Gp Capt (Dr) Sanjeev Sood
MBBS,MD,PGDHHM,M Phil(HHSM),AFeISAM,FCGP

Hospital Administrator

&

NABH Empanelled Assessor

Gurgaon
doc_ssood@yahoo.com

4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

Why calculate RoI ?

AimValue realization
CIO walking tight rope
Techno-economic appraisal
To convince leadership
To understand the potential impact
on cost and revenue generation
To
facilitates
investment
prioritization by making a project-toproject
comparison
between
investment options
4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

enges in Technology Appraisal & Deploym

Capital Intensive
Successful outcome may be difficult to
ascertain
Interoperability & lack of qualified staff
for IT adoption
Viewed as a cost overhead rather as an
enabler
&
differentiator
that
can
their
operations
overall
4 transform
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on Transforming
Healthcare with IT &
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nges in Technology Appraisal & Deploym

Proposal by CIOs on IT projects, such as
implementation of HMIS/EMRs/PACS met
with skepticism
A barrage of questions posed by mgt
that needs cost justification, critical
valuations, RoI, DCFs, IRR & pay-back
period etc.
CIOs on defensive.

CIO harassed by the queries

on RoI, DCF,IRR,NPV

4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

Economic Appraisal of IT Projects

Needs systemic
analytic
approach
applying
knowledge
spanning
multiple
disciplines
Thus, calculating
RoI for CIOs may
be
an
inescapable

PM
Cost
accountancy

Healthcare

Finance

IT

ing the Simple Paradigm

IT projects - long gestation period
& payback should be looked at only
after 3 - 5 years
Intangible
benefits
such
as,
improving
healthcare
quality,
efficiency & accessibility, & are
difficult to assign any monetary
value
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Certain benefits of IT adoption

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chnology Cost/Impact Decision Matr

Cost
Impact

Improve

No change

Worsen

Increase

1. ??

2.Never

3.Never

No change

4.Always

5. ??

6.Never

Decrease

7.Always

8.Always

9. ??

4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

onomic Appraisal Techniques

Cost-benefit analysisThis
technique
is
used
to
evaluate,
systematically, multiple objectives & actions that
are not mutually exclusive & is applied, when all
aspects of cost & benefit of the selected
technology can be assigned a monetary value.
The outcome of this analysis is presented in Rs
terms that enable decision makers to decide in
favor of alternative that has the lowest cost &
highest benefit.
Today, the IT architects such as cloud
computing,
virtualization,
mobile
&
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on Transforming Healthcare
with technologies
IT
6 7 Sep.

4th

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Economic Appraisal Techniques-2

Cost-effectiveness
Used to evaluate multiple ways (usually
mutually exclusive alternatives) of reaching a
single objective e.g., to buy HMIS off the shelf or
develop & customize ones own .
For many health IT applications, it may not be
feasible to measure the benefits or outcome in
financial terms e.g., loss of life or limb cannot be
precisely assessed ;benefits of the shortened
ALOS may not be possible to assess considering
more no of pts that will be treated on the same
no of hosp beds .
In this case, one might estimate the cost
associated with extending life for addl yr 6or 7cost
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conomic Appraisal Techniques-3

Cost-utility analysisMeasures interventions effect on
both
the
quantitative
&
qualitative aspects of HC, like
measuring the quality of life
extended by using tools like
QALYs e.g., the extended yr
spent in leading a healthy life
4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

Steps in Economic Analysis-A

10
stepproblem
approach
1.Define
& identify the objectives-what the Org
desires ?

2.Identify alternatives
3.Develop an analytic framework for cost/benefits:
convert intangible benefits to tangible factors
4.Analyze costs- TCO;direct & indirect costs

5.Analyze Benefit-direct/indirect,short/long term

4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

Steps in Economic
6.Differentiate
perspective
of analysis-payor,provider &
Analysis
(Contd)
patient
7. Perform discounting & amortization

8.Deal with Uncertainty-Sensitivity analysis

9.Ethical issues-Who receives these benefits?

10.Discuss resurts in terms of validity & re-evaluate

decisions-continuous monitoring
4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

ps in Economic Analysis-3
3.Develop an analytic framework for
cost/benefits

convert intangible
benefits to tangible
factors

Competitive
Advantage,Patient
Safety

ROI = (PV OF EXPECTED BENEFITS / PV OF

EXPECTED COST) * 100

4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

Factors affecting ROI

Since ROI may not factor in all risk or intangible rewards, it
is prudent to list some of those risks and intangibles that
may impact an IT project
Lack of resourcesDevelopers or testers may not be
available or may not have the proper skill sets, requiring
additional funding from the company.
Dissatisfied clientThe client or users may be dissatisfied
with the IT solution you delivered and reject it until its
corrected. You may need to add code, burning up more
time, testing, and money. Or, the solution may not be
compatible with current or future operating systems,
platforms, or other applications.
Unsatisfactory executive commitmentThe executive team
may not be fully committed to the project (e.g.,
dissatisfaction
withonthe
proposed
project
4th
International Conference
Transforming
Healthcare
withbudget).
IT
6 th 7th Sep.

4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.

Summing Up
ROI < 100 % should not be undertaken
unless there are compelling reasons to
do so & strong executive sponsorship for
the project
Accurate IT valuation may not be easy
to ascertain or ensure failure of an IT
project may have several causes
And root cause may lie in people & not
technology per se-selecting technology
for inappropriate reasons
4th

Accurate technology appraisal & its

International Conference on Transforming Healthcare with IT
6 7 Sep.
value realization is a complex, data
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Summing Up-2
Armed with above knowledge &
the given analytic framework, the
CIO is better equipped to put up a
strong business case & convincing
argument for IT investments

4th

Supported by a mature &

visionary leadership, he can have a
smooth sailing in achieving an IT
empowered
organization
as
a
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Dr Sanjeev Sood
Hospital Administrator
Gurgaon

doc_ssood@yahoo.com

4th International Conference on Transforming Healthcare with IT

6 th 7th Sep.