ROI Missing a Big Target: IT Consultants

Computerworld - The economic downturn and corporate accounting fiascos have put increasing pressure on CIOs to justify every dollar spent on IT and do return-on-investment calculations. But a substantial portion of IT spending has so far escaped scrutiny.
Largely because of a lack of know-how, many IT executives are letting the millions of dollars they spend on IT consulting slip under the ROI radar, so those costs aren't factored into the business case for expenditures.
As IT infrastructures grow more complex, consulting services play a bigger part of the total cost of IT, says Rebecca Wettemann, vice president of research at Nucleus Research Inc., an ROI consulting firm in Wellesley, Mass. "The greater the business value of an application, the greater the need for expert services to help implement it," she says.
The trouble is, many companies are having a hard time coming up with metrics that demonstrate whether the consulting services are worth the extra cost. In fact, two-thirds of Nucleus' clients don't know how to justify the cost of consulting, says Wettemann.
The Credit Union of Texas, based in Dallas, is typical. It has used consultants to implement large-scale business-intelligence and imaging systems over the past several years. But consulting costs haven't been part of the budget analysis because they're too difficult to quantify, says CIO Jerry Thompson. "We wouldn't even attempt to calculate ROI on consulting engagements because we've never been able to figure out how to," he says.
Don't Even Ask
Few CIOs are even willing to comment on the topic. For this article, 20 top-level IT executives were asked to describe how they measure ROI from consulting services, and only two would discuss it.
Researchers at Kennedy Information Inc. in Peterborough, N.H., say that large companies typically spend up to 1% of their annual revenues on IT consulting, which is quite a bit, considering that most of the Fortune 500 earned more than $3 billion last year.
"A CIO might not even want to know what the actual return is on a consulting contract. But the savvy CIO would want that calculation to be part of the project and would tie consulting costs to it," says Brad Smith, vice president of research at Kennedy Information.
In fact, the cost of consultants is often double or triple that of the hardware and software they help implement. That adds up when a CIO requests funding for a $100 million ERP system.
"ROI from consulting has to be looked at through the larger prism of the product purchase," says Anna