ep_ex4


 
Exhibit 4  Does IT Pay Off?

CALCULATING MONETARY BENEFITS FROM IT INITIATIVES

Outputs Examples Monetary Benefits
Increased productivity An IT infrastructure upgrade improves productivity of a manufacturing operator whose labor costs are tied to operating hours. Calculate the unit labor cost of the operation. The increase in output multiplied by the unit labor cost is the added value of the IT upgrade.
Time savings An IT project reduces labor involvement in IT programs.

An IT project eliminates bottlenecks in production and delivery, resulting in increased on-time deliveries.

Multiply the hours saved by the labor cost per hour plus benefits.

If the result is a reduction in grievances, use the average cost per grievance to estimate the benefits.

Increased capacity utilization Infrastructure enhancement (for example, use of satellite communications) optimizes the use of existing resources, such as transportation vehicles. Benefits arising from increased turns (that is, journeys from the production facility to the customer and back) are equal to additional sales minus direct variable costs.
Improved quality An IT project enhances manufacturing quality, resulting in:

Lower preventive and appraisal cost of quality.

Less scrap and waste.

Multiply the number of hours saved by the standard wage, adjusted by a benefits factor.

Calculate the savings in costs of defective products by subtracting their salvage value from the total cost incurred at the point the defect is identified.

Direct cost savings Integration of the organization’s IT systems with those of its global customers and dealers.

An IT initiative to increase information systems security.

A program of consolidation and standardization across a range of hardware, database, communications and applications systems reduces IT expenses.

Calculate the reduction in administrative costs.

Reduced hours of system downtime (multiply the hours saved by the average hourly productivity) and reduced fraud incidence (estimate the financial damage caused by fraud).

Benefits equal to reduced IT expenses (cost of operating and maintaining the IT system).

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