Weighing GIS benefits with financial analysis.

• Author: Korte, George
• Position: Geographic information system

This article is adapted from material that originally appeared in the July 1996 issue of GIS World and is reprinted with permission of GIS World Inc.

One of the principal reasons many geographic information system (GIS) programs never get off the ground is that top management is not persuaded to support them. Other programs stall when initial GIS applications fail to meet management's expectations and additional funding is withheld. GIS demos are dazzling, and GIS success stories are impressive, but an organization's CEO(s) still needs to ask, "What is the payoff?" A favorable financial analysis of a GIS investment will greatly increase its chances of approval and continued funding.

Working as a GIS consultant to several municipalities and utilities, the author developed a model for the financial analysis of GIS. While specific assumptions may vary from organization to organization, the method employs sound, widely accepted principals of financial analysis. All six clients who used it were able to obtain funding for their GIS programs. In fact, one of them, the GIS department of a large water/sewer utility, had its budget increased while all other information system budgets were reduced. The reason was that it offered management the promise of a tangible return on its investment.

The analysis involves three primary steps: 1) estimate GIS program cost, 2) estimate the cost savings that will result, and 3) employ one or more standard techniques of financial analysis to determine the attractiveness of the investment given the expected returns.

GIS Program Cost

Costs can be broken down into two types that coincide with a GIS program's two principal phases: implementation and maintenance. GIS implementation involves three general types of costs: services, hardware and software purchases, and database creation - usually a GIS program's largest cost component. Maintenance, or ongoing costs, includes the cost of operations and the maintenance of the digital database following system implementation. The GIS database needs to be kept current as changes occur in the real world. The cost of maintaining the GIS should allow for replacing or upgrading hardware every four to six years. Software upgrades typically are included in the basic software maintenance fee.

GIS Cost Savings

Estimating GIS cost savings is a two-step process: first, determine the current cost of using the map and map-related attribute data that will be placed in the GIS database; second, estimate the portion of this cost that will be saved through GIS use.

A fast, easy way to estimate the current cost of using map data is to survey the supervisors of all the departments that will benefit from the GIS. (Ideally, the survey would be part of a broader GIS requirements analysis.) It is important to convey which existing data sources will be included in the GIS database. Then ask, "What percent of their time do department employees currently spend...