IT investment projects should and can be measured in the same way, using a structured process to evaluate a project and basing estimates for the unknowns on clear assumptions. Do you believe the new portal will make everyone 15 percent more productive? Use a productivity correction factor to develop an estimate of the returns that productivity will bring, include that assumption in your ROI calculation and then test your ROI by doing the same calculation using assumptions about the best and worse case. Then you'll know how sensitive your ROI is to the returns from productivity and how critical it is that you focus your deployment efforts on making sure those returns become reality.
Some evaluate ROI in a vacuum. Quick calculators, pre-sales ROIs delivered by a sales rep and generic ROI figures focus on a number not on the reality of managing a technology project so its benefits outweigh its costs. A real pre-deployment ROI calculation provides not just a number but also a roadmap for deployment that can be consulted to ensure you're on the road to a project with positive returns. Are the consultants costing more than you budgeted? That's OK if the new figures don't kill the ROI. Was increased sales productivity a big assumption in justifying your project? Then you'd better make sure the sales team is trained and using the solution as soon as possible to keep returns on track. When it's done right, a ROI evaluation can support negotiations with vendors, prevent project creep and be revisited on a regular basis to support an ongoing understanding of technology value.
Some make up other three-letter metrics. Be careful: Analysts who don't understand finance created many of these so-called metrics, and your CFO will laugh if you present them as financial justification for a project. ROI and Payback Period are the key metrics you should be looking at to understand the risks and returns associated with a project. Structured correctly, a ROI analysis takes into account all the unique characteristics of IT projects while being comparable to the ROI from other corporate investments.
Unlike some other technology fads, ROI will not go the way of legwarmers and hula-hoops and it won't disappear when the next new trendy business book is published to promote someone's consulting services. It's a real financial metric, and it's likely your company has been using it for years to support investment decisions. Use it in a structured way to evaluate IT, and you've done more than strengthen your business case. You've created an action plan you can follow to ensure your technology investment delivers ongoing benefits to the bottom line.
Prospects for 2004
The right decision for you will depend on your current IT environment, developer skills and business needs, but here are a few good investment prospects that will deliver returns in 2004.
Best-of-breed. There used to be a compelling argument for buying a solution suite or applications from the same supplier they worked better together than a jumble of applications based on proprietary code. Unfortunately, that often meant sacrificing functionality or suitability on one component to stay with the same supplier.
That's not true anymore; standards-based applications and the availability of integration platforms and adapters enable rapid and sturdy integration of solutions. Companies considering an investment in human resources, financials, customer relationship management (CRM) or other enterprise applications should make each product decision based on the ROI from the different technology options. You shouldn't let your decision to buy one supplier's financials package force you into buying their human resources application, or be sold on a suite of components because you expect business value from one piece judge each component based on its own merits.
Integration. It should come as no surprise that the second key to maximizing ROI after best-of-breed is integration. It's come a long way, and a small investment in integration technology can deliver significant returns particularly if it leverages existing assets in a way that was financially unfeasible before.
Integrating existing systems is a great way to leverage assets while reducing the cost of doing business the challenge in the past has been the disconnect between business needs and developer requirements. Let's face it: Developers don't necessarily know that much about the business, and how many business managers can write a line of code? The best integration strategies separate the business process design from the implementation, enabling both developers and business analysts to be more productive because it structures the way they interact during the development process. Using a design tool enables business users to draw, consider and redraw the integration without wasting developers' time writing code that will eventually be discarded. Once the initial project is up and running, business users or developers can make changes without disrupting the entire system. Remember, the goal is to rapidly complete integration projects that support business needs and can be changed over time.