At the Randall Publishing Company, an IT steering committee evaluates all potential IT projects. To provide a detailed view of both the project’s value, as well as related internal costs, TechRepublic member Shane Kilgore created this internal cost analysis worksheet.
“This document is used to present potential IT projects, and each project must be able to show a positive Internal Rate of Return (IRR) over a three-year period,” explained Kilgore, Technical Services Director at Randall. While all tech expenses classified as a project require this document, day-to-day IT operations don’t, he noted.
According to Kilgore, if you have an investment that requires and produces a number of cash flows over time, the IRR is defined to be the discount rate that makes the net present value of those cash flows equal to zero.
“It is a financial planning tool or a metric used to measure the rate or payback rate of an investment, or in this case an IT project in which the business chooses to invest,” he explained. The calculation is embedded into the spreadsheet, and cash flows out of the business must be negative on the sheet for it to work correctly, added Kilgore.
A customizable tool to detail projects
The first page of the worksheet, called MIS/IT Project Request/Initiation Form, outlines the “who and what” of the technical objective. It includes data fields for a timeframe as well as approval signature areas for the requestor, controller, IT director, and ITSC.
The second page, Internal Cost Analysis Worksheet, outlines initial costs, ongoing costs, project internal time requirements, and ongoing internal time requirements.
The third page, Cost Savings/Revenue Generation Detail, lets IT leaders provide specific details on the cost savings and revenue generation of the proposed IT project.
The final sheet of the tool is an ROI form that pulls all the relevant project costs and justification data together.
The worksheet tool allows IT executives to accomplish two significant goals, said Kilgore.
“You’re able to eliminate the coolness factor when it comes to technology, as ‘cool’ does not generate a return. It’s also much easier to produce ROI if the project is championed by the business and not by IT,” he explained.
The tool, added Kilgore, also prompts the organization leaders (such as the CFO and the CEO) to treat internal IT as operations.
While Kilgore hasn’t revamped his worksheet since he created it, it’s easily customized, making it an extremely useful download for TechRepublic members. The IT leader said he’s considering revamping the hourly staff costs estimated on the worksheet, as those costs do change. IT leaders using this document will likely need to adjust the hourly costs indicated on the sheet to meet their own organization’s costs.