For the Sake of Discipline

Survey indicates a healthy number of IT organizations conduct ROI and TCO analysis

Arlington, MA  October 3, 2002  According to a recent study by Cutter Consortium, 42 percent of companies are collecting both total cost of ownership (TCO) and return on investment (ROI) data.

Cutter Consortium Senior Consultant Steve Andriole, who analyzed the survey data as part of his research on IT discipline for Cutter's Business-IT Strategies practice, said he finds this significant because TCO and ROI data collection lies at the heart of acquisition and management discipline. "Though we'd prefer to see numbers like 80 percent to 90 percent practicing TCO and ROI discipline, 42 percent is a healthy  and we presume growing  trend. Twenty years ago, TCO and ROI discipline was hard to find in the technology acquisition area."

ROI calculations for new technology investments, one of the cornerstones of IT discipline, are popular with about 17 percent of companies. Said Andriole: "ROI calculations are tougher to make than TCO calculations because ROI links to business results; TCO calculations can stand alone.

"The problem most of us have with TCO numbers," Andriole continued, "is the quantification of the soft costs versus hard ones, such as the cost of people support versus procuring hardware, software license fees, and the like."

Andriole said the irony is that about 9 percent of respondents conduct TCO analyses without purposeful ROI analysis. He explained that while it's good practice to collect TCO data, the reason a company should collect it is to interpret it with reference to business outcomes, measured in some flavor of ROI.

When asked about the 21 percent that don't calculate ROI or TCO, Andriole answered that those that don't calculate cost/benefit data on their technology acquisitions will certainly suboptimize their investments.