Question 1
The Verizon’s IT-project approval process is being done under the Capital Program Planning section of the telecommunication company. It is the main component responsible of the planning process, in which it includes the company’s strategic initiatives in order to create a long-term plan for the maintenance of the resources and other important things which are needed by the information system. Generally, the Capital Program Planning is divided into three sections: the project identification, approval, and funding (Capital and Maintenance Planning, n.d). Though it seems that the second part covers the approval part, the other two sections are equally important with regards to the implementation of a proposed IT project.
Project Identification
In this section, different structural organizations within the company cooperate with one another in order to determine which project will be needed for the maintenance and development of Verizon in the future. First, the project will be detected within several lines of business, or LOBs, which include the current local market of telecommunication systems, and the engineering operations. From here, these LOBs will propose the projects to the management, which will then be subjected for approval (Capital and Maintenance Planning, n.d).
Project Approval
After the projects have been determined, the management will be now responsible for their approval. Specifically, the LOB management will be the one to initiate the proceedings of approval. It is the one who will evaluate the sufficiency of the projects, and if they meet the necessary requirements. Several analyses will be conducted, including the risks, the capital and maintenance, and the objectives, which will all be conducted by the Telecom Capital Management, or the TCM group, through the so called Business Case System, or BuC, which handles all the reviews and analyses needed to approve the projects (Capital and Maintenance Planning, n.d).
Project Funding
After all the necessary requirements (review and analyses) have been completed, and the project has finally been approved, the Chief Financial Officer, or the CFO, will now be ready to fund it. The CFO is an officer which is a part of the LOBs, specifically, the local telecommunication market. After the CFO approves the project, other LOBs will then follow the lead, particularly with the objective of meeting the project’s goals and targets, while considering the BuC that is made in the second part (Capital and Maintenance Planning, n.d).
Processes Leadership
In Verizon, the structural organization of the Planning sector is important with regards to the implementation and approval of the proposed IT projects. The planning is headed by the Finance department, and the CFO remains the highest supervising officer. He is the one responsible for reporting the proposed projects to the operation networks, particularly in the Engineering Department. The CFO is also connected with the TCM group, led by a President, who will report the BuC reviews and analyses down to the Vice President and the Finance Department, through the CFO. Also, the TCM is the one responsible for the communication with the LOBs, particularly the local telecommunication market, or the one responsible for the project determination (Capital and Maintenance Planning, n.d). The leadership in the company is effect in a way that not only the organization’s head makes all the necessary decisions regarding the project. All the subordinates are involved because the President is required to report all the results of the reviews and analyses, implying that the opinion and decisions of the subordinates are vital component of the project as a whole.
Question 2
Verizon is a company directed to providing communications, entertainment and information services and products to customers like individuals, businesses, and other institution. This directive requires Verizon to always deliver the services and products that could be considered more convenient for its many consumers. Furthermore, the inability of Verizon to outcompete any other companies in terms of IT may cause a decline in profit and decline in its market value. This very nature of Verizon makes advancements in its IT justified in many ways. However, like any other business, investments should always be financially justified so as to keep the business going and growing. Being a pioneer should not just be a bragging rights or a tactic to outcompete other companies, it should also be a move that can make Verizon financially successful. An investment on the advancement in the IT of Verizon is not small and should likewise make sense financially. Furthermore, there are certain areas in IT that will be discussed in terms of their financial justifications.
The first advancement in IT that Verizon should implement is the IT security investment. Companies that specializes in cyber security has been securing large investments from many companies despite the instability or turmoil in the market. This is because many recognize that a threat to one’s cyber security can cost a lot of money and investing a large amount for security is a more valid choice, financially speaking (Reuters, 2015). Verizon should likewise consider implementing advancements in security measures in order to prevent any cost that may be incurred upon breach of security. The implementation of more advanced cyber security, both in their servers and cloud storage, would allow Verizon to get a handle of their money rather than letting their walls down and being vulnerable to attacks. A single cyber-attack can cost the loss of essential information that can likewise cost up to millions or billions of dollars that many companies, including Verizon, should not suffer (Reuters, 2015).
Verizon has invested in improving optical technology. This is an investment that aims to allow the execution of important processes to be faster and more reliable. Verizon has started with this investment in 2015 and the news that Verizon had completed with its testing already allowed Verizon to become more financially stable. During that time, Verizon experienced an increase in the value of its stock by 0.9 percent (Lee, 2015). This is evident that Verizon should push through this area of advancement in order to make more profit. This can likewise attest that this investment on the advancements in IT through optical technology can be considered financially justified. Verizon profits by being a pioneer in any technology that can make their consumers experience the most convenient products or services and optical technology is one way to accomplish this.
Aside from the aforementioned improvement in the experience of the consumers when advancements in IT are implemented, the outlook of the investors should also be considered. An improvement in the technologies within Verizon is viewed as a strength, which lures investors (Lee, 2015). Thus, investments made in the implementation of advancements in IT can allow Verizon to have more opportunities to grow and develop areas that needs improvement. Larger investments that are caused by the advancements in IT can be likewise considered a financial justification.
Question 3
Argument for Approval of IT Projects
However, it is not always the case that all that the projects are approved in a smooth manner. There are some factors in which different concerned organizations argue about. These arguments originated from the key players of the organization, particularly the CFO. In the Finance department, the analysis of the projects is left with a financing team which consists of a project manager, senior program manager, and the employees working under them. This team will report directly to the executives, including the CFO, and the individuals within this team are the ones responsible for determining solutions in case financial and operation problems occur during the course of activities (Verizon, 2016). In the current situation, unfortunately, the company experiences unimproved profit due to the implementation of the “non-subsidy model and stalled take rate for equipment installment plans”, which, according to the current CFO Fran Shammo, is “a perfect storm of factors” which significantly pulled the company downwards, profit-wise (Goovaerts, 2016). This fact only showed that there is something wrong with the implementation of the plans, and thus, the need to appeal to this established policy.
Nevertheless, this kind of financial argument is a very traditional one because there are times when a company struggles with the difficulty of increasing the company’s profits and meeting the target values. First of all, there has something that needs to be done with the non-subsidy strategy of Verizon. According to Goovaerts (2016), the customer demands subsidy as a traditional business transaction from before. However, after the subsidies have been removed, the upgrade of the technologies significantly slowed down. Consumers, on the other hand, wanted their technologies to be upgraded as fast as possible, and as a result, the growth expectation of 76 percent was not met, even if the stalled take rate in installment was implemented (Goovarts, 2016).
In the approval of future IT projects within Verizon, this experience must be taken in great consideration, and that the policy of prioritizing the price over the quality of IT products must be put into doubt. However, the main point is that the customers are one of the most important of assets of a technology-based company like Verizon. The CFO must reconsider the current policy, and avert the financial allocations into improving the quality of the products, particularly the upgrading capacity. The bottom line is to consider the trend, and follow the satisfaction of the customers.
“Driving Meaningful Growth” (Verizon Ventures, n.d) is the main philosophical theme of Verizon. However, this is only achievable when the customers are truly satisfied with the services offered by the company. In order to achieve this, it is important to maintain balance between finance and strategy in order to optimize the potential benefits of the implemented policies such as the increase in profit and guaranteed customer satisfaction. Moreover, this philosophy will start from the wise implementation of IT projects, since Verizon focuses on these kinds of products. Because of this, it is also important to consider quality in implementing strategies and in the allocation of financial resources. Arguments arise from the beginning of the project proposals, and the common notions of the executives will be to increase profit by strategically minimizing the resources while improving the quality. However, if both factors are bound to contradict each other along the way, then the increase of resources is needed to be done
in order to satisfy all the customers.
Question 4
Internal Rate of Return
The Internal Rate of Return or the IRR is used to financially justify usually large and investments that span for years. It can be simply referred to as the rate or percentage rate that each dollar invested earn in a given period. In other terms the IRR is the return from investments in a certain time frame in which the investment breaks even or has neither gained or lost in terms of profits. IRR is usually used by many companies to justify their investments since its determination takes into consideration the time value of the investments and there are many available software or computation platforms that calculate IRR easily. Furthermore, IRR is also ideal when analysing annual returns, but it may oversimplify the financial situation of an investment. It is likewise considered as internal since it does not take into account other external variables, such as interest rates in the market and inflation (McCready, 2005).
Return on Investment
The Return on Investment or ROI can be confusing at certain instances. This is because it can be sometimes referred to as a measurement of financial condition and sometimes as a collective idea that refers to other measurement of financial condition like IRR, payback and net present value. Moreover, ROI is its own measure and can be interpreted as the percentage in a specific time frame. For instance, ROI is a measurement that evaluates the percentage of returns with regards to the cost of investments or the gain of a company or business from its investment. If one, for example, invested in stocks for a hundred dollars and sold it for 140 dollars after a year. Then the ROI would be 40 percent. With the ROI, one could easily compare the success of an investment and make rational financial strategies that could generate more profit. However, ROI does not take into account the size of an investment since it is expressed in percentage (McCready, 2005).
Net Present Value
The Net Present Value or NPV of an investment or project is the profits or benefits subtracted by the cost incurred in the investment or project. Unlike the ROI, NPV is not expressed in percentage. Instead, NPV is expressed in dollars and can likewise take into consideration the magnitude of the investment and the size of the said project. A positive or greater than zero NPV indicates that an investment generated profits, while a negative or less than zero NPV indicates that an investment did not earn and only incurred cost. NPV is likewise used to justify financial decisions in terms of the inflow of cash that is projected against the outflows. Projects or investments with low or negative NPV should be avoided or reconsidered. Furthermore, NPV may be difficult to calculate manually, but there are also many software or platforms that readily computes it (McCready, 2005).
Payback period
The payback period is a measure used to analyze an investment, especially when cash flow and time are relevant factors. It is the period by which an investment starts displaying a profit. For instance, if you invested in a project, the payback period will mean the time that it required for the costs and funds invested to be recovered. A million dollar investment that can save a company 250, 000 dollars will likewise take for years before the payback period is met. The payback period is an essential measure for businesses since there are many instances when a long payback period can be considered unwanted. There are many investments where profits should readily be produced, and the payback period can help evaluate in this regard. However, unlike other measures like the NPV and the ROI, the payback period of a certain investment or project does not take into consideration the time value of investments or money (McCready, 2005).
References
Capital and Maintenance Planning. (n.d). Doherty & Company, Inc.
Goovaerts, D. (2016). CFO: Verizon Battling Headwinds from Subsidy Switch, Stalled EIP Take Rate. Retrieved 8 August, 2016, from https://www.wirelessweek.com/news/2016/05/cfo- verizon-battling-headwinds-subsidy-switch-stalled-eip-take-rate
Lee, U.J. (2015). Verizon Stock Advances after Testing New Optical Technology. The Street. Retrieved 7 August, 2016.
McCready, S. (2005). TCO, NPV, EVA, IRR, ROI- Getting the Terms Right. CIOview White Paper. Retrieved 7 August, 2016.
Reuters. (2015). Cyber Security Investing Grows, Resilient to Market Turmoil. Fortune. Retrieved 8 August, 2016.
Verizon. (2016). Finance Project Manager – Financial Reporting and Analytics. Retrieved 8 August, 2016, from http://www.verizon.com/about/work/jobs/4572599-project-manager- financial-reporting-and-analytics-solutions
Verizon Ventures. (n.d). Our Philosophy. Retrieved 8 August, 2016, from http://www.verizonventures.com/philosophy/
