Making IT investments with no financial return in sight went out of style with the dot-com collapse, according to members of a panel at Computerworld Inc.'s Premier 100 IT Leaders Conference. Now, they said, it's time for IT managers to put the R back into ROI.
But predicting the return on investment of IT projects is often difficult and sometimes impossible, panel members said yesterday. Even so, cautioned Bob Prochnow, the former CIO at SiteStuff Inc. in Austin, Texas, technology managers can't expect to continue to get carte blanche on new investments as many did for Y2k fixes and early e-commerce initiatives. "We have to pull back now," he said. "We have to justify projects."
If ROI calculations are hard to determine for a particular project, "find something else to focus on," Prochnow advised. At SiteStuff, which runs a business-to-business marketplace for the commercial real estate industry, Prochnow and his staff looked at variables such as transactions, revenue per transaction and the number of Web site visits. "You need to measure something against expectations," he said. "You need some way to track progress."
In an electronic poll of the audience, 43 percent of the respondents said they do ROI analyses on proposed IT projects, while 48 percent said they don't. But of those that do try to calculate potential paybacks, 84 percent said they include nonfinancial "soft" factors in the analysis of planned technology investments.
That makes sense, according to members of the panel. "Sometimes the CIO, through force of personality, says there are certain things that just have to be done, like B2B commerce," said Cathy Hotka, CIO at the National Retail Federation, a retail-industry trade association in Washington. There are intangibles that can be taken into account, such as the ability to be one of the pioneers in using a particular technology, she added.
With the economy softening and corporate budgets tightening, several panel members suggested slowing down the pace of IT projects and focusing on ones that promise a fast payback. For example, Hotka cited an unidentified CIO at a retailer who flatly refused to consider any new project that couldn't be completed in six months or less.
But Monte Jones, a consultant at The Feld Group, a Dallas-based firm that places temporary CIOs and IT teams at companies, warned attendees not to take things at too slow a pace. Technology managers who do that could "lose focus and lose sponsorship," he said.
And Jon Carrow, director of global IT sourcing at pharmaceutical maker American Home Products Corp. (AHP) in Madison, N.J., said now isn't necessarily a bad time to undertake new IT projects. AHP recently embarked on a sales force automation project. "Now's a good time to get the people and tools to do that," Carrow said. "And a lot of software vendors in this space are hurting for sales, so you have a lot of leverage."
In another audience poll, spending on IT infrastructure topped the list of technology costs that attendees said they would be least likely to reduce if their budgets needed to be pruned. That was cited by 44 percent of the respondents, followed by 23 percent for training, 14 percent for software upgrades and 9 percent for staffing. Another 7 percent listed new technology, while the remaining 3 percent chose hardware.