For ROI, you've got to have a plan
- 06 March, 2002 14:25
"ROI" might be the acronym du jour in these budget-conscious, cost-focused times. But how well are organizations really tracking and measuring returns on investments, both during an IT/business project and afterward?
Not very well, according to an unscientific poll of attendees at Computerworld US's Premier 100 conference this morning. When asked in an interactive poll whether their companies go back and measure the ROI of a project six months after it has been completed, more than 60 percent responded "rarely" or "never."
"When times are tough, like in the third and fourth quarters last year, we were focused on costs and cost-savings," said Jean Holley, CIO at USG Corp. in Chicago. But when business conditions improve, "you're focusing on the customer -- the customer is king -- and much less ROI measurement takes place."
Still, there are effective ways of tracking the returns on IT projects during both good times and bad, according to Holley and a group of conference panelists who talked about ROI. Among their tips: break long-term projects into bite-size chunks where deliverables can be measured on a quarterly or even monthly basis. Doing that can help keep projects focused, on track and within budget.
Perhaps more importantly, after "demonstrating the deliverables, then the [second- or third-phase project funding] will come along," Holley said.
One of the caveats of being too ROI-focused is that companies can run the risk of "looking at individual projects with great returns projected, but there are still things missing in [a company's application] portfolio," said Louis Gutierrez, a principal at Cambridge, Mass.-based The Exeter Group Inc. and the former CIO at Harvard Pilgrim Health.
There are other fairly simple steps that IT leaders can and should take to justify IT projects to their bosses or business constituents. "If you can't do a one-page benefit analysis on the dollars you're spending, you shouldn't do [the project], should you?" said Russ Lambert, director of e-commerce at Wesco Distribution.
To make sure its projects stay on track and are delivering the anticipated returns, Holley's group conducts monthly project measurements. That way, "if we're nine months into a project, we can be sure that we're hitting our targets."
In fact, USG recently completed a benchmarking study with IT consulting firm The Hackett Group on its ROI measurement processes "and it validated the approach we were taking," she said.
For her part, Cathie Kozik, CIO and senior vice president at Naperville, Ill.-based Tellabs Inc., works with the company's chief financial officer and the financial controller from each business unit to examine the investments and expected results from planned projects. The group then ties its planning to a balanced scorecard it uses to track projects.
The most critical part of the process: The returns generated by each project are tied to the bonuses for each of the team leaders, a provision that's "very important" in helping to ensure the success of these efforts, Kozik said.
Each of the panelists spent some time talking about the importance of alignment between IT and business units. At Sony Electronics Inc., "I make sure there's a full line of sight with the top three or four stakeholders" in a project in order to ensure effective alignment, said James Milde, the company's CIO.
Still, it's important for CIOs and other IT leaders to learn from mistakes they've made in tracking and measuring ROI. For example, Tellabs recently rolled out a business portal that's used by its customers. Even though the company "captured" its IT costs, it failed to measure "all the new business that marketing had to deal with" that flowed in from the portal, Kozik said.