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OCR for page 53
Evaluating IT Investments--A Common Decision Tool 53 Line 12--Break-Even Point. The fastest and easiest calculation to do, the break-even point determines the point in time that total savings resulting from the system benefits surpass the costs of implementing the system. Most airports look for payback periods in the 3-year time frame. Anything with a payback period of more than 5 years should be carefully vetted. 5.5 Scoring Systems The costbenefit analysis discussed in the previous section only takes into account benefits that can be quantified in terms of financial savings. When evaluating a potential investment in a system, the nonfinancial benefits need to be considered too. Figure 5-2 represents a spreadsheet with a simple scoring system that includes both nonfinancial benefits and valuation data from the costbenefit analysis. The spreadsheet is divided into three sections: Project information Nonfinancial evaluation Financial evaluation Project information provides, in brief narrative form, a description of the system, project responsibility, proposed system benefits, and potential risks of implementation. Nonfinancial evaluation takes into account all the benefits of the system that could not be quan- tified in dollars but are still important. Each benefit can be assigned a relative weighting of importance. For example, a regulatory requirement might be given a very high weighting on the scoring sheet. Each benefit is then scored from 1 to 5 based on the criteria presented for each. Using all the benefit scores, a total weighted score of the nonfinancial benefits can be calculated. Financial evaluation takes into account the data calculated in the costbenefit analysis. As with the intangible benefits, each financial aspect is weighted and scored, which allows the financial value of the proposed system to be calculated. In the example presented in Figure 5-2, the project has an average nonfinancial valuation and a good financial value. Each airport needs to determine what values represent a good investment for it. Often, airports establish hurdle rates based on their particular financial environment--also known as the minimum rate of return the airport is willing to accept before starting a project. The spreadsheet can also be used to compare the relative value of one system to another. Often, limited budgets dictate that some proposed systems, even though they have a good financial valua- tion, cannot be approved. This scoring mechanism allows an objective comparison of proposed systems to determine which ones will bring greater value to the airport.

OCR for page 53
54 Information Technology Systems at AirportsA Primer Figure 5-2. System valuation scoring sheet.