Optimizing the ROI of Enterprise Architecture Using Real Options - End User Computing Challenges and Technologies: Emerging Tools and Applications - page 50

2003). The first priority is to collect detailed cost
data for enterprise architecture. Next, it is very
important to establish and monetize measurable
performance improvement objectives. Finally,
benefit to cost ratio, return on investment, net
present value, breakeven point, and real options
are determined from the cost and benefit data,

with no further data collection. The states in
Table 3 estimated the costs of their e-govern-
ment initiatives, identified their benefits, and then
monetized them. B/CR, ROI%, NPV, breakeven,
and real options were then estimated using the
metrics from Table 2.

Table 2. A suite of simple of metrics and models for measuring the ROI of enterprise architecture

Costs
(sum of costs)

Total amount of money spent on enterprise architecture

Benefits
(sum of benefits)

Total amount of money gained from enterprise architecture

n

∑ =

Benefit

i

i 1

B/CR
(benefit to cost ratio)

Benefits Ratio of enterprise architecture benefits to costs

Costs

Benefits −

Costs

Costs

ROI%
(return on investment)

Ratio of adjusted enterprise architecture benefits to costs

× 100 %

NPV
(net present value)

Years

Benefits

Discounted cash flows of enterprise architecture

∑ =

− Costs

i

Years 0

( + Discount Rate ) i 1

BEP
(breakeven point)

Costs

Point when benefits exceed costs of enterprise architecture

× 0

60

Months

NPV

ROA
(real options analysis)

Business value realized from strategic delay due to risk

( ) ( )

− Rate × Years

N d × Benefits − N d × Costs × e

1 2

d1 = [ln(Benefits ÷ Costs) + (Rate + 0.5 × Risk 2 ) × Years] ÷ Risk × √ Years, d2 = d1 − Risk × √ Years

Figure 1. Cost and benefit categories and data from 75 state-level e-government initiatives

Costs Benefits

Economic
Development
$69 thousand

Economic
Development
$2 million

Reduced
Redundancy
$6 million

Fostering
Democracy
$10 thousand

Reduced
Redundancy
$24 million

Fostering
Democracy
$0

Constituent
Services
$110 million

Financial
Improvement
$117 million

Constituent
Services
$616 million

Financial
Improvement
$617 million