Wednesday, April 1, 2015

The Project without ROI: Does it Make Sense?

Do not think of ROI as a simple accounting measure.

Nowadays, with rapid change and hyper business competition, organizations have to continue to build the new business capabilities as well as keeping the light on, via solid project deliveries. As say’s going, every IT project is business project, IT is business, business justification is crucial for initiating and managing projects. Does that mean every project needs to have ROI. The project without ROI: Does it make sense?

A project has to deliver some business value: Success is not usually delivering a new IT application. Business value is usually achieved by improving or adding business capabilities. Often the root cause for dissatisfaction with IT projects is a mismatch between the initial expectations of the business stakeholders and IT. This can be addressed by ensuring up front that the desired benefits are realistic and achievable in an organization. A business stakeholder has to be accountable for realizing the benefits, not IT. On the ROI side, there are metrics that could be used and monetized. The top metrics which is of interest to Executive Management are either ROI, ROE or growth. Any project has a cost, and a cost with no obvious or measurable (directly or indirectly) return makes no sense. A project with no clear ROI (not just the crunching number from finance perspective though) sounds like you don't really understand the project and its relation to the strategy.

Do not think of ROI as a simple accounting measure: ROI is a concept first and a set of numbers second – and the types of numbers involved can vary widely depending upon to what the ROI relates. If ROI is only financial, you are hard-pressed to do that. But in the 21st century, ROI is expanding into other less measurable, but no less tangible areas that we need to be focusing on, such as employee satisfaction, creativity, teamwork, collaboration, making silos disappear, etc. There is a concept of the 'golden thread' that can link business strategy to an investment objective, a business benefit, a business change, an enabling change and finally a technology enabler. This helps an organization to assess if the business change (with associated technology) is the right thing to be doing in the first place.

Scrutinize the ROIs from vendors as well: you cannot take at face value a standard ROI provided by a vendor of a product as not only are they potentially “tweaking” the numbers to make their product look good, they also do not include the unique local company practices and behavior patterns – something most companies fail to ever accurately assess – which in many, if not most environments is far more relevant to this type of risk assessment than most of the factors that are routinely discussed. So make objective assessment about partner relationship, "trust but verify," not through single lenses, but through multi-dimensional viewpoint.

Cost-Value communication starts ASAP: With many projects, the CIO, IT manager or some kind of tech liaison should be in on the early discussions whenever technical infrastructure or other initiatives will be needed. At that early stage, valuable insights can be provided and any cost / implementation issues can be communicated to the people / team driving for a specific project. With this open level of communication on every project:
- Everyone is in the knowing
-Unnecessary low-value projects stay in the drawer  
- Costly backtracking and project / implementation failures can be avoided
- And when IT sees an opportunity, the communication channels are open to propose ideas.
There are a wide variety of projects that have been dismissed by the board, and C-level is also not supportive; this suggests either an issue about trust and credibility or a blockage at board level. Generally speaking, if there are no ROI calculations, but a cost to deliver a project from someone the board does not have any history or track record,  most boards would not agree to it progressing (unless it was an enforced regulatory / compliance change, in which case it could still be monetized).

The ultimate deliverable is to deliver a product/service useful to the defined purpose with well set priority. There are many items that need to be done, but with no incremental business value, and would not make the cut from many prioritization perspectives. There are also initiatives where IT could sponsor some server consolidation or cost reduction activities, the ROIs for these type of investments will not be as high as transformation initiatives, but IT does need to make sure they get done... if they do not champion and sponsor them, who will. Many organizations somehow seem to have a disconnect between the pure IT project portfolio (infrastructure) and the rest of the (business oriented) IT project portfolio. This leads to the rest of the business having little or no visibility of such investments and not always appreciating their value. So IT leaders need to make solid business case, interpret IT project portfolio more clearly with tangible measurement to gain business support.  

Companies have limited resources, it is important to have well calculated ROI (going beyond just traditional accounting measurement) or some form of rigor in making wise investment decisions about where and why to spend on what, and make sure all the shareholders are in the same page. By communicating earlier and often, and use the language everyone understand, IT leaders shall work strategically to ensure the investment has been made via leveraging the varying factors including ROI to achieve optimal business result.  


Post a Comment