ROI for Technology Projects

Brian Roulstone,Jack J. Phillips

• Editore: Routledge
• Anno: 2007
• ISBN:
  9781136367694
• Edizione: 1
• Argomento: Business
• Categoria: Business General

This is the first book focusing on the ROI for technology investments written by a technology executive for technology decision makers with the support and guidance of the foremost authority in the discipline of Return on Investment. This book leverages the talents of both authors to provide a framework and methodology that can ensure greater success in mobilizing technology initiatives. There is no other book on the market that specifically addresses the critical need to prove ROI on resource intensive technology projects with a time-tested and industry leading methodology. To date, most ROI books have focused in the areas of human performance, training, marketing, and other human capital related disciplines. With increased scrutiny of technology spending by the most complex organizations in the world, technology leaders need a 'tool kit' to help them prepare for hard-hitting discussions with their organization's CFO, president, CEO, or chairman about the return they should expect from critical technology projects. Rather than focusing top managers' attention on cutting, challenging, and controlling expenditures (as many C-level accountants prefer to do), this approach guides technology managers in providing executives with more comprehensive, balanced information that helps all involved make better business decisions. Along the way, it helps technology managers communicate more effectively with the financial decision makers in their organizations. The book also shows executives how partnering with IT leaders can help top management understand the return these technology projects can provide to the organization in increased human efficiency, automation of manual processes, unified organizational data, and other high-return results from complex and critical technology initiatives.At the same time, executives and IT professionals need to have their projects measured with a balanced perspective. While the ROI itself is very important, it's also important to capture intangibles related to the project, as well as information about application and implementation of the project. Even earlier in the cycle, it's important to capture reaction to the technology and the extent to which individuals have learned the technology. Together, these data sets represent a balanced profile of success, with ROI at the pinnacle.

CHAPTER 1

Measuring the Return
on Investment for
Technology Initiatives:
Trends and Issues

Measuring the return on investment (ROI) in information technology (IT) and technology development has consistently earned a place among the critical issues in the IT field. The topic appears routinely on conference agendas and at professional meetings. Journals and newsletters regularly embrace the concept with increasing print space. Professional organizations have been developed to exchange information on ROI evaluation. Numerous books have been written in other disciplines—such as training and development and human performance—but few deal with the IT area, even though technology and communications, spending exceeds $2.8 trillion and is nearly 7 percent of the global gross domestic product (Accenture, 2005). No wonder top executives have stepped up their appetites for ROI information as the costs of strategic technology projects have skyrocketed over the past few years.

Measuring ROI is a hotly debated topic. Rarely does any topic stir up emotions to the degree of the ROI issue. Return on investment is characterized as flawed and inappropriate by some, whereas others describe it as the only way to address their accountability concerns. The truth probably lies somewhere in between. Understanding what drives the ROI Methodology and knowing its inherent weaknesses and advantages make it possible to take a rational approach to the issue and implement an appropriate mix of evaluation strategies that includes ROI. This chapter presents the basic issues and trends concerning ROI measurement.

Although interest in the topic has heightened and much progress has been made, ROI evaluation still challenges even the most sophisticated and progressive IT departments. Whereas some professionals argue that calculating the ROI is not possible, others deliberately proceed to develop measures and ROI calculations. The latter group is gaining support from the senior management team. Regardless of the position taken on the issue, the reasons for measuring ROI still exist. Almost all IT professionals share the concern that they must eventually show a return on their IT investments. Otherwise, IT funds may be reduced, or the IT department may not be able to maintain or enhance its present status and influence within the organization.

The dilemma surrounding the ROI process is a source of frustration with many senior executives—even within the IT field itself. Executives realize that IT is a basic necessity to support the infrastructures of their organizations, but the key difference is how IT is viewed by others within the organizations. When organizations experience significant growth or increased competition, IT can provide employees with the tools they need to meet competitive challenges. IT is also important during business restructuring and rapid change, when employees must learn new processes and companies must operate more efficiently through technology automation and often find themselves doing much more work with a dramatically downsized workforce. Every large companies today make huge investments in technology regardless of its industry focus. The company does not have to be a “tech” company headquartered in Silicon Valley to have countless technology-based systems permeating the organization. The key difference is that companies are spending the money to maintain these systems, and that is exactly what they are doing—spending and spending and spending. Then there are the best-practice organizations that track the returns of their technology investments, so the organization has a system maintenance mentality and refocuses on the automation of processes that can be gained by strategic technology investments.

Most executives recognize the need for IT and technology-related research and development and intuitively feel that IT investments add value. They conclude that IT can pay off in important bottom-line measures, such as productivity improvements, quality enhancements, cost reductions, and time savings. They also believe that IT can enhance customer and partner satisfaction, improve efficiency, and increase collaboration within their organizations. Yet, the frustration comes from the lack of evidence that the process works. Although the payoffs are assumed to exist, and IT appears to be a necessity, more evidence is required, at the risk of not getting the necessary funding to truly make technology strategic within an organization. The ROI Methodology represents the most promising way to show this accountability in a logical, rational approach.

ROI PROGRESS AND STATUS

Global Measurement Trends

A few global trends about measurement and evaluation in both private and public sector organizations should be examined. The following measurement trends have been identified in our research and are slowly evolving across organizations and cultures in more than 50 countries. Collectively, these 11 trends have had a strong impact on addressing accountability:

• Technology significantly enhances the measurement and evaluation process, enabling large amounts of data to be collected, processed, analyzed, and integrated across projects.
• Evaluation is an integral part of the design, development, delivery, and implementation of projects.
• A shift from a reactive approach to a more proactive approach is developing, with evaluation addressed early and often during the cycle.
• Measurement and evaluation processes are systematic and methodical, often built into the delivery process.
• Evaluation planning has become a critical part of the measurement and evaluation cycle.
• The implementation of a comprehensive measurement and evaluation process usually leads to increased emphasis on the initial needs analysis.
• Organizations without comprehensive measurement and evaluation have reduced or eliminated their project budgets.
• Organizations with comprehensive measurement and evaluation have enhanced their project budgets.
• The use of ROI analysis is emerging as an essential part of measurement and evaluation processes.
• Many successful examples of comprehensive measurement and evaluation applications are available.
• A comprehensive measurement and evaluation process, including an ROI calculation, can be implemented for about 4 to 5 percent of the direct project budget.

Progression of ROI Evaluation Across Sectors

The ROI Methodology had its beginnings in the 1970s when it was applied to the development of a return on investment for a cooperative education program at Lockheed-Martin. Since then, it has been developed, modified, and refined to the process detailed in this book and expanded in all types of situations, applications, and sectors. Figure 1-1 shows how the process has evolved within different sectors. Applications began in the manufacturing sector, where the process was easily implemented. Its use then began in the service sector, as many major service firms, such as banks and telecommunications companies, used the ROI process to show the value of projects. Applications evolved in the health-care arena as the industry sought ways to improve educational services, human resources, quality, risk management, and case management. Nonprofit applications also emerged as these organizations pursued ways to reduce costs and generate efficient processes. Finally, applications in the public sector appeared in a variety of government organizations. Public sector implementation has intensified in recent years. An outgrowth of public sector applications includes the use of the process in the educational field, where it is now being applied in different settings. The implementation is spreading to many different organizations and settings, including in IT and technology applications to show the value of investments in these areas.

Figure 1-1. Progression of ROI Implementation

Typical Applications

The specific types of project applications vary significantly. Table 1-1 shows a full range of current technology-focused applications representing projects from customer relationship management (CRM), enterprise resource planning (ERP), e-commerce, security, and many others. Published cases and whitepapers exist in all these areas. The process is flexible, versatile, and adaptable to almost any type of setting and environment.

Case Studies

The status of the ROI Methodology among practitioners in the technology field is difficult to pinpoint. Senior IT managers are reluctant to disclose internal practices and, even in the most progressive organizations, confess that too little progress has been made. Until recently, finding cases in the literature that showed how an organization attempted to measure its return on investment in IT was difficult.

Table 1-1
ROI Applications

• Enterprise resource planning (ERP)	• Customer relationship management (CRM)
• Information security	• Business intelligence/analytics
• Outsourcing	• System integration
• E-commerce	• Custom application development
• E-learning	• Mobile technologies
• Network infrastructure	• Process automation
• Compliance	• Hardware
• Expert systems	• Self-service applications
• Contact center applications	• Telecommunications

Research Studies

Studies indicate that the use of and interest in the ROI Methodology are growing. Research studies are continuously conducted that show the progress of ROI evaluation as well as the dilemmas concerning this level of evaluation. Accenture, a leading global technology consultancy, recently conducted a study surveying more than 300 organizations globally using 33 proprietary indicators of high, average, and low performance in managing IT (Accenture, 2005). The most compelling result of the study was that “high-performing IT organizations spend significantly less time maintaining and fixing systems and significantly more time building new systems. High performers, on average, spend 40 percent more time building and integrating systems than low performers” (Accenture, 2005).

The focus of this study was to understand IT performance in a statistically significant sample of organizations that comprise the Fortune 1000—from industries such as communications and high technology, financial services, government, resources, and products. What the survey of 310 chief information officers or the senior decision-making executive for IT within the company was really about was ROI! The highest-performing organizations were not the companies that spent the most on IT as a percentage of revenue, but those organizations that maximized the return on their technology investments. These are some of the other staggering results of the study:

• CIOs have more than three to four more times IT work than incremental dollars to address those technology initiatives.
• The low-performer group, on average, spent 48 percent of its time maintaining and fixing legacy systems.
• The corresponding high-performer group spent, on average, 35 percent of its time on similar activities.
• IT projects, on average, come in at a 29 percent success rate.
• The average cost overrun for projects is 56 percent.
• The average schedule delay for strategic technology initiatives is 84 percent of the original project plan.

Accenture’s conclusions on the importance of IT investments are backed up by a May 2005 issue of Barron’s featuring the “Barron’s 500” performance ranking of the largest U.S. and Canadian public companies, in which the editors cited three common themes for the winners:

1. Revenue growth
2. Smart use of IT
3. Tight-fisted overhead cost management

Barron’s cites the number one company in their ranking, United Health Group, as follows:

Chief executive Bill McGuire says a number of important factors are responsible for the company’s strong performance, but adds United Heath’s $2 billion investment in information technology over the past four years is one of the most salient. In 2001, the company handled 4 million electronic transactions—a claim or a question from a doctor or customer, for example. Last year, it dealt with 220 million. Some 85 percent of claims and customer care transactions no longer require direct and costly human intervention. (Accenture, 2005)

These and other studies indicate two important conclusions:

1. Around the globe, interest in the ROI Methodology as an IT and technology development evaluation tool is growing.
2. Although progress has been made, much more advancement is needed to reach the desired level of use.

Global Expansion

Measuring the return on investment is becoming a global issue. Organizations around the globe are concerned about the accountability of IT and are exploring ways to credibly measure the results of IT investments. Many professional associations in the U.S. and other countries offer workshops, seminars, and dedicated conferences to the measurement issue, including ROI. Formal ROI presentations have been made in more than 70 countries, with implementation organized and coordinated in at least 50 countries. The ROI Network, a global group of practitioners who promote the science and practice of individual and organizational measurement and accountability, also holds an annual global conference.

Paradigm Shift

The progress with ROI evaluation underscores the need for IT and technology development to shift from an activity-based process to a results-based process. As depicted in Table 1-2, a significant paradigm shift has occurred, having a dramatic effect on the accountability of IT and technology development projects. Organizati...

Indice dei contenuti

• Front Cover
• Half Title
• Title Page
• Copyright
• Contents
• Preface
• Acknowledgement
• About the Authors
• 1 Measuring the Return on Investment for Technology Initiatives: Trends and Issues
• 2 The ROI Model: History and Background
• 3 Establishing the Need for the Technology Project
• 4 Collecting Data
• 5 Isolating the Effects of Strategic Technology Investments
• 6 Exposing the Value of Strategic Technology Projects
• 7 Tabulating Project Costs
• 8 Calculating the Return
• 9 Identifying Intangible Measures
• 10 ROI Forecasting
• 11 Communicating Results
• 12 Implementing the ROI Methodology
• Appendix
• Index