Next Month in Part Two

The Dollar Dialogues: Our fictional CIO and CFO identify, analyze and suggest strategies to resolve the long-standing divide between money and technology

Tips from the Budget Masters: Three CIOs talk about using the budgeting process as a management tool to make their organizations successful

SIDEBAR: Key Concepts

Your CFO uses these tools to take your company's financial temperature. Learn them. Live them

Debt ratio divides total liabilities by total assets and shows how much of a company's assets are financed through borrowing.

Working capital is the difference between current assets and current liabilities and indicates a company's ability to pay short-term debts.

Return on assets divides operating income by the average investment in assets over the year and is one way of looking at return on investment (ROI).

Net present value (NPV) calculates the expected impact of a project on the value of an organization. It takes into account both the money that a project is expected to generate and the cost of capital used to finance the project. A positive net present value means that the project provides a greater return than what an investor would minimally require - say, putting those funds into a money-market account, treasury bill or other standard low-risk investment.

Economic Value Added (EVA) equals net operating profit minus associated capital charges. EVA encourages managers to monitor assets as well as income and keeps them aware of the trade-offs between the two. Evaluating an ERP system, for example, EVA would include any and all related expenses - initial cash outlays, maintenance, and internal and external training costs - and take those as a charge against anticipated benefits, which might be increased revenue or reduced costs.

Total cost of ownership (TCO) is an efficiency metric created by Gartner that calculates ongoing support costs of new products and upgrades. It includes the costs of purchase, administration, setup, tech support, maintenance, downtime and any other costs associated with owning an IT asset such as a PC or software package.

Total Economic Impact (TEI) is a decision-support methodology that calculates flexibility by looking at risks associated with the costs, benefits and flexibility of a given investment. For example, when evaluating two options for an IT investment (such as buying a software package or developing the application in-house), risk considerations include the availability and stability of vendors, products, architecture, corporate culture, and size and timing of the project.

SOURCES: CIO reporting, including "A Buyer's Guide to IT Value Methodologies", CIO; also Accounting: The Basis for Business Decisions by Robert F Meigs and Walter B Meigs