One of the most subjective figures in IT is what we call “Return on Investment”. What does it really mean anyways?
Our clients talk about getting the best ROI from IT all the time, and quite often I feel as though some do not really understand what it is they are actually asking for, or how to determine what to expect when investing in new technology. Other times it feels as though customers want us to make a statement about a great “Return on Investment” so that they can sell their internal finance team on a solution that they KNOW their company needs, but cannot justify it in any other way.
There are so many variables to truly consider an ROI accurate (I do challenge anyone that says they can show me a precise ROI that’s impressive). Many ROI calculations fail to account for the major heavy lifting on the front end to plan and execute a strategy (be it IT, Marketing, Operations or otherwise).
Many forget the most important question that needs to be asked… WHY? Why consider this brand over another? Why work with partner A vs partner B? Why one location of the company to get a new technology versus the whole company? Why insource versus outsource? To cloud or not to cloud? So many questions that all lead to building an ROI, but which questions have more weight than others? Even when there is no sound reason, one asks themselves “why am I even doing this?”
Presenting predictable results of a project are tough – some companies put an emphasis on “future dollar value”, whereas others focus more so on “productivity” or their “customer experience”. One must accurately set goals of any project, and strive to overachieve on those goals as much as possible to generate a better “ROI” for their company, but that is not always so easy or possible. Accurately defining a baseline is critical, and that cannot be done without a precise goal being realized.
Some assumptions are acceptable, but one must be careful not to over-assume… because it could cause a discrepancy in the long run. Building a solid plan based on research and facts is key, but what if you are doing something new, inventive or creative? It’s almost impossible to come up with a predictive ROI when doing something that has not been done before.
Thankfully, IT isn’t THAT complex – yet. Many organizations, however, are starting to put measuring sticks against IT spend in the same way that all spend happens. This has become more apparent over the years (gone are the days of “spend on IT because… we need it!”). Creating ROI for other departments (such as Marketing) is much more mature and has been calculated for a long time. So has operations and sales. But IT… this is new”er” to the IT world.
It’s important that IT departments take notes on what other departments are doing, and how their finance departments measure ROI and decide to fund projects. IT now competes dollar to dollar with other departments, but being strategic about how to get what IT needs is a matter of proper “internal selling”.
Focus on what the big picture is for the organization. What efforts is the company undertaking? What direction is the leadership team taking the company? Then determine which projects have been funded in the past (and more importantly, why). Monitor the trending of the projects that do get funded, and try to understand how the finance team determined the level of ROI is acceptable for expenditure. Especially take note on whether your organization likes to buy things or finance them, and why. (If your organization never finances or leases projects, maybe you need to ask your financial team why they don’t, and if they would be interested in ZERO percent financing offers – most captive lease organizations have great promotions that make it more affordable to buy from time to time).
Bottom line is that it’s critical to work closely with your IT solutions provider to go through all these motions and leverage what they are doing for their other customers. Some of your biggest competitors may be working with your service provider, and you may be able to leverage their experience and avoid failures by opening up to them.
Remember that not all solution providers are out to take your budget away and just sell you something just because you are buying. Some actually care about you and your organization enough not to just “sell” you a widget. Some companies actually strive for your success and want your company to get stronger and more profitable. When you find a partner like that, hold on to that organization tight and don’t take advantage of them. Use that type of organization to help you determine more accurate ROI predictions so that you can go back to your executive team and tell them why they need the next IT project to get funded.