Transcript Document 9651544

Matakuliah
Tahun
: A0784 - Strategi Investasi IT
: 2009
Basic Financial Methods
Pertemuan 7-8
Introduction
• Investment in IT expects convincing analysis to
justify their proposal
• Focus on fundamental financial components
expected in IT investment decision-making analysis.
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Basic Financial Methods
• The useful life of an IT investment tends is shorter than
real assets
• Capital budgeting techniques are used because IT
investment produces benefits beyond one year and its
useful life extends into the long-term future
• Basic financial methods include breakeven analysis,
payback period method, and accounting rate of return
methodology
• Simple, easy to calculate, and communicate to others
• Payback period methodology is the most widely used
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Breakeven Analysis
• Involves comparison of quantifiable costs with
quantifiable and non-quantifiable benefits of IT
• Breakeven point is where total value of benefits equals
to total costs
• Benefits > costs = good investment
• Steps :
1. Calculate the PV of costs
2. Calculate the PV of quantifiable benefits and subtract
from PV of costs as net costs
3. Determine if intangible benefits are at least the value of
net costs
 See Table 2 and Table 3
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Intangible benefit
• To determine :
– Survey well-informed managers
– use a surrogate measure that reflect the actual value
• Breakeven analysis allows intangible benefits to be
considered in the analysis
• One way to measure or estimate the value of nonquantifiable benefits is through regression analysis
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Payback Period
• Payback period of investment is compared to cutoff
period
• Payback period = time required to recover the cost initial
investment
• Cutoff period = time which investment must recover its
initial investment
• Payback period < cutoff period = good investment
 See Table 6 -Table 9
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Accounting Rate of Return
• ARR is the average annual income from an IT
investment divided by average annual book value of the
initial investment cost
• The values appear on the financial statements of an
organization
• Does not consider the time value of money
 See Table 10 – Table 13.
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