ROI on IT Projects Difficult to Measure

Conference attendees cite lack of tools, processes needed to perform calculations

Palm Desert, Calif.

ROI might be the acronym du jour in these budget-conscious times, but how well do companies really measure returns on their IT investments?

Not very well, according to an informal poll at Computerworld's annual Premier 100 conference, which was held here last week to honor top IT leaders. The event drew more than 400 attendees.

When asked during a session if their firms go back and measure the return on investment of IT projects six months after the work is completed, 68% of the respondents said "rarely" or "never." About 300 people attended the session, although some may not have taken part in the poll.

Good Times Vs. Bad

"When times are tough, like in the third and fourth quarters last year, we're focused on costs and cost savings," said USG Corp. CIO Jean Holley, who was one of the panelists at the ROI session.

But when business conditions are good, "you're focusing on the customer," Holley said. "The customer is king, and much less ROI measurement takes place."

Jean Holley, USG Corp.

Jean Holley, USG Corp.

Photo Credit: Asa Mathat

Additional polling results supported Holley's comments. For example, 65% of the respondents said they don't have the knowledge or tools needed to do ROI calculations. Nearly 75% said their companies don't have formal processes or budgets in place for measuring the ROI of IT projects.

Still, there are effective ways to track ROI during both good and bad times, according to Holley and her fellow panelists. Among their tips: Break long-term projects into bite-size chunks so deliverables can be measured quarterly or even monthly.

For example, Holley said the IT group at Chicago-based USG conducts monthly assessments of project milestones, such as development progress and enablement of business productivity improvements. That way, she said, "if we're nine months into a project, we can be sure that we're hitting our targets." Efforts such as these can also help to ensure that funding for follow-on project phases will be approved by senior executives at the building materials company, Holley said.

IT managers can take other fairly simple steps to justify projects, according to the panelists. "If you can't do a one-page benefit analysis on the dollars you're spending, you shouldn't do [the project]\, should you?" said Russ Lambert, director of e-commerce at Pittsburgh-based Wesco Distribution Inc.

Cathie Kozik, CIO at Naperville, Ill.-based Tellabs Inc., said she works with the company's chief financial officer and the controllers from its business units to examine the costs and expected returns of IT projects. The group then ties its planning work to a balanced scorecard tool that's used to track the results.

The most critical part of the process: The ROI generated by projects is tied to the bonuses of the team leaders who are responsible for them, a provision that's "very important" in helping to ensure that the efforts are successful, Kozik said.


Copyright © 2002 IDG Communications, Inc.

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