Demystifying ROI

Who's afraid of ROI? You are. At least, that's what CFOs would have us all believe. Despite much dutiful attention to the biggest buzzword of the year, the rap persists among CFOs that IT is not only afraid of ROI but also clueless about how to find it, figure it and finesse it.

Are the bean counters right? Or are you building ROI credibility in your organization today? Are you getting a reputation for being savvy about applying IT to cost savings or revenue generation?

Maybe not. The fastest way to the heart of ROI is measurement, but that seems to be the first tripwire for IT organizations. At US Computerworld's Premier 100 IT Leaders Conference last month, we asked more than 150 IT executives if they measure the ROI of key projects six months after completion. "Rarely or never" said 68 percent of them, and 65 percent said they lacked the "knowledge or tools needed" to even do ROI calculations. Ouch.

Yet everybody in IT is aware of the current business mantra: "Show me the ROI." We quote IT managers constantly in our stories about the criticality of fast payback, quick turnaround and customer benefits from their projects. This topic is high on the IT radar scope.

It's even higher on business radar. Some 23 percent of U.S. companies are demanding detailed ROI analysis to justify IT investments these days, according to a recent survey of 1,200 businesses by Marcoccio Consulting. That's up from a mere 9 percent last year and likely to shoot as high as 65 percent next year, the consultancy predicted.

It's equally clear that when ROI can be measured, the business side opens the checkbook. At Delta Air Lines, for example, this year's IT operations project budget of US$160 million was bounced up to more than $200 million "because [airline executives] had a whole list of projects that would produce payback this year," said Curtis Robb, president and CEO of Delta Technology.

IT managers who have found (or created) credible ways to measure ROI recommend using clear language that highlights the benefits not in IT-speak, but in business terms. And be brief: Keep ROI reports to a single page. These managers know that "hard" ROI (spending these dollars yields this payback in that amount of time) is better than "soft" ROI (vague promises to improve productivity or customer satisfaction). And they make sure they can answer questions such as: What impact will this system have on sales? Where exactly does it save money?

Sometimes you find ROI in unexpected places. In this issue, read about how National City did that. The 1,200-member IT team at the Cleveland-based financial firm cut its average project turnaround time by an astonishing 45 percent. One key method involved reuse of software code, which turned into a very measurable ROI. On average, a single software component took 200 hours to design, at a chargeback rate of $74 per hour, or $14,800 per component. When one component was reused in eight different projects, that saved the company more than $100,000.

National City CIO Jim Hughes found a way to measure ROI clearly enough for any CFO to understand and appreciate. Have you done that yet at your company? E-mail me, and we'll write about your IT organization's triumph over big bad ROI. w Maryfran Johnson is editor in chief of Computerworld. You can contact her at maryfran_johnson@computerworld.com.

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