In search of ROI measurements

By Matt Hamblen

March 25, 2002 12:00 PM ET

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Computerworld - Thanks to the recession and the resulting push to contain costs, ROI has become a big buzzword in IT. Yet few companies are tracking ROI in a consistent and standard manner, says Kazim Isfahani, an analyst at The Robert Frances Group in Westport, Conn.

Setting up an ROI methodology

1. Create an ROI program that's headed by an official in the CFO's office who becomes the ROI guru.

2. In addition to calculating ROI, the ROI guru should serve as an evangelist throughout the company, promoting ROI and how to implement it.

3. The ROI guru should hold weekly or biweekly meetings with business and IT players to create a standard method for ROI measures. After three months, they should develop a template of measures to be used for future IT projects.

4. The ROI guru must get the CFO and CIO to buy into the strategy that the business and IT players have developed.

5. Create a "life cycle cost of ownership" method for measuring IT projects. During the implementation phase, the ROI guru can derive data on full life cycle costs for each IT function. These should then be measured for each new project.

SOURCE: Lou Marcoccio, Marcoccio Consulting, Westboro, Mass.

Two companies that have embraced standard ROI measurements - Merrill Lynch & Co. and Compaq Computer Corp. - began implementing their own standard IT planning processes more than two years ago. In both cases, managers had a hard time setting up the methodology, because the IT process was time-consuming and highly political. But the result for both organizations has already been worthwhile in terms of financial payoffs and in raising the strategic value of IT within the companies, managers report.
About 23% of U.S. companies require a detailed ROI analysis to justify investments in all IT projects, according to a December 2001 survey of 1,200 businesses conducted by Marcoccio Consulting in Westboro, Mass. That's up from just 9% in March 2001, an increase that leads consultant Lou Marcoccio to predict that by the end of this year, 65% of companies will require a detailed ROI analysis to justify IT projects because of pressure from top management, executive boards and shareholders.
"ROI is going to be much bigger going forward. . . . It has to be much more than a fire drill to make a difference," says Marcoccio, author of a book on best practices for ROI measures that will be released this summer.
"Most organizations don't have expertise in the whole concept of ROI, partly because in the past, IT leaders

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