Financial Evaluation of an IT Project

try today to build a financial report of effectiveness of an IT project.
We will observe several sources of income and costs.
Also we will put all figures in a table for better visualisation
Let’s go

5В050700-Management

to reduce costs, and others to achieve both. If you can estimate the amount of money that each topic will bring or save, you can use it for prioritization purposes. The responsibility for predicting the financial value of the topic lies with the product owner, but it can be shared with team members - programmers, testers, analysts, project managers, etc. In most cases, the product owner must also rely on business knowledge and sales and marketing team forecasts.
To determine the financial impact of the topic, I prefer to organize meetings with the number of people that seems appropriate. The purpose of such a topic assessment meeting is to complete the form given in the table for each topic. Depending on the number of topics and participants, this event may not be limited to a single meeting.

be for topics. If you have other return types in your project, change the headings accordingly. Similarly, use other column headings if you want to specify them. It is not necessary to have the same set of columns for all topics.
The meeting participants complete the worksheet by estimating the cost in the cells they consider to be affected by the development of the topic.

Sources of Return (2/4)

5В050700-Management

Table 10.1 provides a line for each quarter of the next two years. The time horizon is set at the option of the command. Sometimes teams prefer to determine the monthly return for one or two years. In my experience, a two-year period is suitable for most projects. This is a kind of middle ground between divination about the distant future and a reasonable look forward. Due to the high uncertainty associated with software development projects, others take this approach (Bills, 2004a).

from a marketing study, which was used in the economic justification of the feasibility of the project. At a minimum, the person requesting this topic should quantify the basis for its development. Income from the project can come from various sources. For convenience, we will designate them as new income, income growth, retained income and operational efficiency.
There can be no doubt that the most common source of income in the project is the generation of new income. Few companies are content with the existing market share, in most they try to attract new customers. Even if the product is not sold directly, adding new features can generate new revenue. It is often useful to distinguish revenue from new customers from additional, incremental income from existing customers. Income gains can be the result of a new system or product:.

· Provides incentives for existing customers to purchase additional licenses.
· Contains optional expansion modules that can be sold separately.

· Contains features that allow you to set a higher price.
· Provides incentives for the use of consulting services (for example, integration with a third-party application).

is the retained income. Saved income refers to income that an organization may lose if it does not implement a project or topic.
No organization can boast of the greatest possible effectiveness. There is always a task that can be simplified or eliminated. If you are developing software for use by internal customers, you are likely well aware of the importance of operational efficiency. At the same time, even when you are working on a commercial program that will be sold outside your company, some tasks within the project can increase operational efficiency. [1. page 77]

based on current sales forecasts, he will be able to attract 50 new customers per quarter this year, and 100 customers per quarter next year. These values are included in the New Clients column of Table 10.3. Although the function will appear only in the middle of the 2nd quarter, Terry is sure that already this quarter will attract 50 new customers.
Now we estimate the revenue per client. This can be done based on existing customer data. We know, for example, that the average customer pays us $400 a year. However, we believe that the new service will be most attractive to small customers, those who pay us an average of $200 per year. In our opinion, you can count on an additional $100 per year from each such client. The total value of each new customer is thus $300 per year, or $75 per quarter. Since the service will be available from the 2nd quarter, revenue per customer this quarter is proportionally reduced. These values are added to the "Revenue per Customer" column in Table 10.3, which allows you to define "New Revenue."[1. page 78]

receive from existing customers. Based on our knowledge of existing customers - how often they are late with the filing of payroll information, etc., we believe that we will be able to attract approximately 100 customers per quarter until all 400 existing customers switch to service the next day.

As for new customers, the service will generate approximately $100 per year, or $25 per quarter after it appears in the second month of the second quarter. Table 10.4 is based on these data to calculate the total income growth per quarter. [1. page 79]

to customer dissatisfaction with our product, growing needs or other reasons for refusing to WebPayroll. The company currently does not have a good indicator to track this factor. We only know that it is beginning to turn

into a problem and will become much more serious over the next few years. According to our estimates, the transition to the next day service will prevent the departure of 20 customers per quarter in the first year and 40 customers per quarter in the second year. It is especially important that these customers continue to use WebPayroll, despite the lack of this functionality until the second quarter. Knowing that each existing customer generates $400 per year, i.e. $100 per quarter, we can calculate the saved revenue as shown in Table 10.5. [1. page 80]

need to almost completely eliminate manual interference with the system that exists today. Without automating this operation, we will have to include two additional accountants in the middle of this year and two more in the middle of next year.

As a result of the planned efficiency improvement in the next day's maintenance project, we expect to reduce one of these positions each year. Accountants cost an average of $20 000 a year. Each of them is also provided with office space, certain equipment, software and compensation payments. In total, these additional hidden expenses amount to about another 50% of the employee's salary. In other words, the real cost of an accountant is closer to $30 000 a year. It's called full pay. The number of accountants who have not been hired and the full salary give when multiplying the operating efficiency for each quarter.[1. page 81]

profile of the service WebPayroll project the next day, we need to estimate the expected costs of developing the topic. To do this, look at the wages of all project participants (Table 10.7).

The full salary in table 10.7 is calculated by increasing the salary of each employee by 50%. Since the iteration takes two weeks, the total salary per iteration is 1/26 of the total salary. The Time in Project column indicates the proportion of time that each team member in the project has. All are fully occupied except for one programmer. The column "Adjusted iteration costs" shows the project costs for each participant, taking into account the full salary and the time of participation in the project. In general, the team's iteration costs are $13 550. Round this value to $13 500. [1. page 81]

item (or one perfect day). To determine this value, divide the adjusted iteration costs by the average or expected command speed.

Given that the average speed of the team WebPayroll is 20 points per iteration, its cost of the point will be 13,500/20 = 675. This information is useful because if a team is asked how much it will cost to develop an element estimated at 100 points, it can immediately give an answer - $67 500 (100 × 675). The costs of the command WebPayroll summarized in Table 10.8.[1. page 81]

income, income growth and operational efficiency are summarized in Table 10.9.

5В050700-Management
The next day service function is expected to be implemented in eight iterations, or after 16 weeks. For the first quarter, there are costs of 13 weeks in the amount of $87 750 (13 × 6750). For the second quarter, there are costs of another three weeks in the amount of $20 250. [1. page 82]

an alternative way of visualizing progress through a release, a sprint burnup chart is an alternative way to visualize progress through a sprint. Both represent the amount of work completed toward achieving a goal, the release goal in one case and the sprint goal in the other.
Figure shows an example sprint burnup chart. In sprint burnup charts the work can be represented in either effort-hours (as in the sprint burndown chart) or in story points. Many people prefer to use story points in

their burnup charts, because at the end of the sprint the only thing that really matters to the Scrum team is business-valuable work that was completed during the sprint, and that is measured in story points (or ideal days), not task hours. [1.page 360]

product backlog items, at a glance we can get a good feel for how the work is flowing and how the team is completing product backlog items through the sprint. To illustrate this point a third line (labeled “Bad flow”) is included on the sprint burnup chart in Figure (normally this line would not be on the chart; it is added in this example for comparison purposes). The “Bad flow” line illustrates what the burnup chart might look like if the team starts too many product backlog items at the same time, delays completion of items until

later in the sprint, fails to meet the sprint target because of the reduced velocity of doing too much work in parallel, works on product backlog items that are large and therefore take a long time to finish, or takes other actions that result in bad flow. [1.page 360]

prepare Burnup chart
on your project

5В050700-Management

Essential Scrum – A Practical Guide to the Most Popular Agile Process. Pearson Education, Inc.2012