An automated ROI analysis tool set to debut in September could make it much easier for IT leaders to cost-justify technology investments to top brass.
ValueIT, a Windows-based tool kit from Alinean LLC, is effectively three IT budgeting tools in one. The system, which will be priced at roughly US$20,000 per seat, is designed to calculate the return on investment of proposed projects, determine which projects offer the greatest financial value and benchmark IT spending criteria against industry competitors -- such as IT spending per employee and IT spending as a percent of revenue -- from a database of 4,000 U.S. companies across 400-plus industry segments.
A second release of the software in January is expected to offer IT spending benchmark comparisons between 27,000 companies around the world.
One of the software tools, Project ROI, uses templates and building blocks to create a risk-adjusted, discounted cash flow analysis of proposed projects. The software draws upon the "information productivity" model that was conceived by Paul Strassmann, the former CIO at the U.S. Department of Defense who now sits on Alinean's board of directors and is a former Computerworld columnist.
The software is designed to assess how IT spending relates to the overall financial performance of a company, using financial calculations such as economic value added, net present value and internal rate of return.
The software also draws upon a list of roughly 150 "intangible benefits" that IT managers can plug into their ROI calculations, such as labor costs per units sold, customer retention rates and inventory turns, said Tom Pisello, president and CEO of Alinean. According to Pisello, the software can be used to measure how an IT project contributes to the strategic goals of a company, such as increased revenue, improved worker productivity and higher customer satisfaction.
According to CIOs and analysts who have been briefed on ValueIT, the product should make it faster and easier for IT managers to cost-justify projects to their bosses.
"The vast majority of CIOs I know are not familiar with the current calculation techniques that a CFO is going to be looking for in project justification," said Garrett Grainger, CIO at Dixon Ticonderoga Co., a Heathrow, Fla.-based maker of writing instruments and art supplies. "This tool should give [CIOs] cookie-cutter opportunities to do that."
Among the features that impress Grainger are the intangible benefits that can be calculated into an ROI analysis. Dixon Ticonderoga is preparing to install a manufacturing resource planning (MRP) module from its J.D. Edwards & Co. ERP package at its plant in Mexico City, where officials hope to be able to measure how the MRP software impacts employee productivity and drives other efficiency gains, said Grainger.
Although the $20,000 price tag for the software is "a big number," Grainger said he believes the investment is worth it since such a product "will save a lot of time and bad project starts and allow you to concentrate on those projects that are going to bring value to the company."
"This product is going to see some pretty decent acceptance in the market, tight [IT] budgets notwithstanding," said Carey Azzara, chief research officer at Hurwitz Group Inc., a Framingham, Mass.-based research and consulting firm. Other ROI analysis tools on the market, such as those developed by IT consultants and Big Five firms, are "usually patchwork and customized to whatever the problem is the client brings to the consultant," Azzara said.
While Azzara thinks the $20,000 price tag for ValueIT should be acceptable to IT managers who work in highly "siloed" organizations, he believes that Alinean will have to "come in with more flexible pricing" for large, distributed organizations that have multiple IT and business managers who would be using the system.
Said Azzara: "Do the multiplication and it starts getting pretty expensive."
Some IT executives are more skeptical about the tool set. "I'm not sure in this day and age with the [IT spending] review policies that are in place that senior executives would rely on a piece of software to generate their results," said Priscilla Tate, executive director of the Technology Managers Forum, a New York-based professional association for IT managers at midsize to large corporations.
"It will be interesting to see the reactions of customers since everyone has their own ROI metrics," added Cathy Hotka, vice president of IT at the National Retail Federation in Washington.
A future version of the software, which should be available by next summer, will include tools aimed at helping IT managers to revisit an IT project, for instance, six or 12 months after it has gone into production to determine whether and to what extent the effort met its business and financial objectives, said Pisello.
"That's going to be great," said Grainger, since going back to check on the returns of an IT project "is one of the hardest things for a CIO to do" due to time and workload constraints.