We’re in a time when CIOs are saying all the right things about fiscal responsibility, yet remarkably few of them actually measure ROI from their IT projects. Research indicates that only about 40% of companies calculate the ROI of their IT investments once projects are complete. And I’ve seen this at clients repeatedly. It seems logical to me that if companies are going to spend considerable time and effort in justifying an IT investment upfront (determining whether or not it is going to produce a worthwhile ROI), they would want to find out whether they actually realized it when the project is over. I’d think that the average executive would want to know:
- Did the system cost more than expected?
- Is the system delivering the anticipated benefits?
- How can I use this information to learn and make decisions about future investments?
- How can I use this to my advantage to boost my credibility?
So why don’t they?
- Fear is one reason. It’s illogical but it’s true. Many are afraid that they’ll be embarrassed or put at risk if they have missed their ROI targets. So they don’t follow up.
- Another reason is the challenges that are associated with calculating the actual ROI. Some say they don’t have the time to do a post-implementation analysis, or that they only do it for the most visible, expensive, or important systems. Others say that their IT staff lacks discipline and know-how, or the information needed to calculate ROI is too difficult or costly to obtain.
- The incentives and hence the motivation aren’t there. ROI accountability isn’t a high priority for CEOs and it doesn’t factor into how CIOs are rewarded. CIOs are typically measured on cost, not performance. They just want to make sure the system works, and that there weren’t significant cost overruns.
- Some don’t believe the original ROI analysis projections. As Beta Group’s Bob Benson puts it: “Not every senior manager really believes the details of the pre-implementation business case ROI anyway, especially for projects with ‘strategic’ or ‘innovative’ content. They certainly will not believe the post-implementation ROI any more than they did the pre-implementation ROI.” And sometimes, an ROI analysis hasn’t been done to begin with. You have to do the analysis at the beginning if you’re going to follow up later.
Whether the above obstacles are genuine or a cover for avoiding professional embarrassment, IT executives must learn to use ROI. Why? Without ROI, there is a risk that IT is going to been solely as a cost center and may face increasing difficulty in obtaining executive support. While it might have been acceptable to be a cost center in the 1980s and the ’90s, it’s a dangerous position to be in now, as the economy remains uncertain and IT matures as an industry.