Do the Math! An ROI Guide

Computerworld - I've heard the argument that failing to do return-on-investment calculations is business malpractice. And I've heard the argument that they're a waste of time. The truth is more complicated, of course.

As a general rule, major IT investments should go through the ROI wringer just like any other business investment -- even more so, because IT investments have a tarnished history. One side benefit to ROI scrutiny is that it can kill off pet projects that need to be stopped, like the customer relationship management initiative launched because the marketing vice president is a golf buddy of a guy at Siebel.
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Doing the math is especially important for projects that have million-dollar price tags. On the other hand, it may be overkill for projects so small that the ROI exercise would be more expensive than the project itself. Even ROI calculations need an ROI.

And sometimes, an IT project would deliver such a mind-blowing competitive advantage that crunching the numbers seems unnecessary. There's a chance that we're killing off revolutionary IT ideas with today's relentless focus on the 12-month payback.

I'm inclined to agree with John Jordan, a big thinker at Cap Gemini Ernst & Young, who predicts that there will be a middle ground between what he calls the "just do it" and the "by the book" ends of the spectrum. "This middle ground will still require sound business cases," he says, "but they'll incorporate a mix of common sense, professional judgment, quantitative modeling and strategic perspective."

Mitch Betts (Mitch_Betts@computerworld.com) is director of Computerworld's Knowledge Centers.

Read more about ROI in Computerworld's ROI Topic Center.