Why ROI Is Important

By Johanna Ambrosio

February 17, 2003 12:00 PM ET

Computerworld - It's helpful to remember why ROI is done in the first place: to get the dollars needed for IT, certainly, but more important, for IT to help the business achieve its objectives.
The jury has been out for years about IT's role in enabling productivity. A November 2002 report by McKinsey & Co. says IT's impact over the past decade has been "diverse and complex, depending on when, where and how it has been deployed."
Indeed, the report singles out only three sectors where IT has had a quantifiable impact on productivity: semiconductors, retail and financial services.
Just as there is no silver bullet in terms of IT's financial impact, there is no single answer regarding how to measure technology-related ROI and what to include in that assessment. Expectations for IT's ROI can and have changed, based on the economic circumstances and corporate culture.
Erik Brynjolfsson, a management professor at MIT's Sloan School of Management who specializes in IT effectiveness, says that "unfortunately, many worthy projects are not getting funding" right now. "After being burned by vague promises in the past, CFOs have become highly skeptical" of the promises of IT's soft benefits and are insisting on hard, tangible returns for each investment, he notes.
"While a bit of this is healthy," Brynjolfsson says, "my research shows that up to 90% of the costs and benefits of IT investments are in intangibles. Firms that ignore this fact risk sacrificing their long-term growth to make their short-term numbers. Striking the right balance requires a fair assessment of both tangibles and intangibles."

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