Assessing your ROI

By IT-Director.com 02 Aug 2002 | IT-Director.com, special to SearchWebServices

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Market Analysis

Assessing your ROI
Last year we saw a lot of attention paid to return on investment (ROI). Many end user organisations acted as though the concept was completely new to them as if in the past they had simply thrown money down a bottomless pit called the IT department. Of course nothing could be further from the truth as all investment is carefully considered, the business case analysed and the end results evaluated - well maybe not, but a new tool looks set to help IT leaders justify their budgets.

The reality of the situation is that it is more down to best intentions rather than actions. After the business case has been established and agreed, everyone focuses on delivery and in the rush to get something remotely resembling the requirements in on time considerations such as ROI are often forgotten.

Now ValueIT, a Windows-based tool kit from Alinean, a consultancy in Orlando, has developed three IT budgeting tools in one. The system is designed to calculate the return on investment of proposed projects, determine which projects offer the greatest financial value, and benchmark IT spending criteria against industry competitors.

Part of the toolkit, Project ROI, uses templates and building blocks to develop risk-adjusted, discounted cash flow analysis of proposed projects using the 'information productivity' model that was conceived by Paul Strassmann, the former CIO at the U.S. Department of Defense. The solution assesses how IT spending drives the financial performance of an organisation using financial calculations such as economic value added, net present value and internal rate of return.

Using over 150 intangible benefits such as staff costs per units sold, customer retention rates and inventory turns, the software can measure how an IT project contributes to the strategic goals of a company, such as increased revenue, improved worker productivity and higher customer satisfaction.

The aim of the solution is to make it easier for IT Managers to justify their spending by applying science to demonstrate tangible benefits. With nearly every spending decision passing up the board, measurement is becoming an absolute necessity for every project. Before the introduction of the tool, ROI was very much in the domain of the accountants and CFO, but the introduction of ValueIT should push the knowledge through the organisation.

Of course, there is a price to pay as the software costs money but the potential savings are enormous. To put it into perspective, it must be remembered that any tool of this kind is only an assistant to the decision making process and at the end of the day it still comes down to the gut feel of those involved. That said, using a tool like this should see a few more comfortable guts around the IT department.

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