Tough talk just lip service to ROI

Although most IT leaders are talking tough when it comes to cost-justifying their IT investments, a new study suggests that it might be just lip service.

According to a report published by Ernst & Young, 79 per cent of Fortune 1000 IT decision-makers agree that financial justification of IT projects is important to them, yet only 40 per cent conduct business case analyses on a regular basis.

Practices of Australian IT executives appear to follow this trend. If business case analyses are conducted at all they are done on a "haphazard" basis, according to IT executives who spoke to Computerworld.

Red tape, bureaucracy, time pressures and a lack of tools and resources were cited as the reasons behind the lack of follow-through.

Grace Removals Group IT manager, Howard Malyon said his company did not conduct business case analyses on a "regular basis", despite financial justification being important to a project's approval to proceed.

He said time was a "big consideration" for this state of affairs as there is no time scheduled at the end of a project to perform a ROI analysis. "If the company had an internal audit division I believe this would be a role for them."

Ally Thorne, IT manager at The Wine Society, said analyses are conducted, but "it does depend on the cost of the project".

"It may cost you more in resources to justify the cost, than the project itself."

A "significant excess of demand" for IT resources and the value of IT to the business has been a "major factor" in mandating ROI within Eastman Kodak, David Lindill, ERP program office manager greater Asia region, said.

He said ROI is required for all IT investment projects and significant enhancements - those requiring more than four hours of "effort".

"Historically there has been limited [ROI] follow-through; however, the climate is changing. The obvious reason in the past was that it was possible to gain approval by using 'must have to be competitive' arguments, and the desire for speed of implementation often outweighed financial due diligence.

"This is no longer acceptable to senior management which is forced to allocate scarce financial resources across many areas."

Like many government departments, Greg Carvouni, CIO for the New South Wales Roads and Traffic Authority, said business cases were vital in order to secure funds.

"All projects over $5000 have a business case. The format varies according to size and sometimes -- where the spend is non-discretionary like obsolete essential business items -- we focus on the least-cost alternative."

IT consultant Philip Nesci believes many organisations "lost the discipline of developing business cases during the dotcom boom".

"I don't think it is a valid excuse to say that IT decision makers lack tools or time to develop ROI cases - at the end of the day an IT investment should create shareholder value, and unless it does so, the investment should not go ahead.

"I think it is really a question of IT decision makers having a business mindset towards IT investment."

Risk decides ROI analysis

Any project using technology that is "not fully understood" or perceived as riskier, "newer" technology, requires greater financial justification before getting the go ahead.

Edith Cowan University security systems administrator Frazer Holmes said any projects that are "not fully understood" -- such as security - require ROI analysis. "Many people see it as important, but do not really know why."

Eastman Kodak ERP program office manager, greater Asia region, David Lindill, said that in his experience B2B, CRM and "especially" Web-based developments are pored over before approval is given.

"Our e-learning projects have also been scrutinised closely."

However, according to a study by Ernst & Young, e-learning and mobile commerce projects were deemed the least important to cost-justify.

Respondents said financial justification was most important for IT security, customer relationship management and supply chain management projects.

The Wine Society IT manager Ally Thorne said projects that are customer service focused, such as CRM, are difficult to measure due to customer satisfaction peculiarities.

Additionally, the study found the need to cost-justify IT investments to secure funding also appears to vary by industry.

Transportation and logistics and communications and media rate financial justification of IT projects as more important than other sectors, such as energy and utilities and financial services, which trailed the pack.

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