Governments can choose from a range of models to identify and categorize the benefits and costs of e-Government projects. Relevant analytic models include:
- return on investment (ROI),
- value assessment methods.
Net Present Value: The net present value (NPV) of a multi-year investment is the present (discounted) value of future cash inflows (or cost savings) of the project minus the present value of the cost of investment and associated future maintenance expenses. By taking into account the time value of money, NPV analysis considers the cost of capital and investment opportunity costs. It is especially appropriate for long-term projects. NPV looks at cash flows, not at profits and losses. NPV analysis is highly sensitive to the discount percentage (i.e., the factor by which the present value of future expenditures and income is calculated), and that can be tricky to determine.
Return on Investment (ROI): ROI analysis evaluates a particular decision by comparing the magnitude and timing of expected gains to the investment costs. Simple return on investment can be defined as the incremental gain (profits increased or costs decreased) that results from an action divided by the cost of that action. If the expected ROI is negative, or small compared to other possible investments, that would argue against going forward with the investment. Decision makers can improve ROI by reducing costs, increasing gains, or accelerating gains. However, as noted in a major study by the
Center for Technology in Government, the traditional ROI measurements used to assess return on their IT investments, such as decreased operational costs or increased revenue cost avoidance, don't fully represent the value of government programs and services. Government IT investments can generate public value in two ways not relevant in the commercial context: By improving the value of the government itself from the perspective of the citizens, and by delivering specific benefits directly to persons, groups, or the public at large. A public value approach to ROI initiative should consider these social and political value of IT investments. The framework developed by the Center for Technology in Government recognizes four basic kinds of public value generators: increases in efficiency; increases in effectiveness; "enablement;" and intrinsic enhancements.
Total Cost of Ownership (TCO): In a business or government environment, the TCO model is useful for determining the range of costs associated with implementing and maintaining a technology. Created as a management tool by The Gartner Group in the 1980’s, TCO.
Note: While models from developed countries are relevant to developing country conditions, it is important to note that some assumptions may differ and it may be necessary to modify developed country approaches for the developing and LDC contexts. For instance, technology costs are significantly higher in LDC countries, while labor costs are significantly less. As a result, efforts to improve efficiency by computerizing governmental functions may not yield the same direct financial benefits in developing countries. Similarly, cost data from OECD countries may provide little guidance for policy-makers in developing countries, as costs may vary widely based on local circumstances.
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