English | EN Governance Advice 101: Start measuring return
Jul 22, 2014
There’s a book titled “The Knowing-Doing Gap” describing why it is so many organizations fail to take action on ideas and knowledge that they already have. They know what to do, but don’t do it. Kind of like “diet and exercise” in your personal life. (Why don’t you exercise more?). Whole swaths of “best practices” fall in this category. So, here’s one such basic best practice: Measuring ROI.
Occasionally I get to go to a CIO/IT Leadership conference. Invariably someone will raise the topic of business/IT alignment. And then, someone else will remark on how unfortunate it is that “in their organization” IT does not audit or review past projects to determine if the business benefits that were projected are indeed being realized. And, as a consequence, IT’s contribution to business success remains shrouded in mystery.
Before addressing the question of whose responsibility measuring ROI actually is, I’d like to spend a few moments reflecting on this idea in general. According to Gartner, each year, on average, companies spend roughly $12,000/employee on IT, about 65% of which is to keep the lights on and 35% to support transformation and growth initiatives. So, an enterprise with 10,000 people will spend around $42 million on new stuff. I think we can all agree that not tracking if this magnitude of investments achieves the desired ROI and/or planned intangible benefits, is likely not a “best practice”.
So, now that we agree that this should definitely be tracked, the question is who should do the tracking? Clearly IT has a vested interest, because the numbers will show “IT value”. But actually, since the investment was made on behalf of a business sponsor, the business sponsor is also accountable for realizing the ROI. Presumably, he or she presented a pretty good case in the IT Steering Committee or similar governance body to make sure that, of all the presented initiatives, this particular one got funded. Measuring this is not too difficult. I recommend organizations stay away from attempts to isolate the IT contribution and simply measure the success of the overall program according to the metrics originally proposed in the business case. Did sales go up? Did personnel get freed up? Did cost savings materialize? Did customer satisfaction increase? The business case should provide success metrics that allow you to attribute these effects to the particular initiative. Track these numbers on annual basis for minimum of three years or as long as the business case projected with intermediate numbers on 6 months intervals if needed. While, just as with stock, past performance is no guarantee for future success, the business sponsors that can prove they were good stewards of the investment funds awarded to them in the past, will have an easier time securing funding for future initiatives.
To make all this work, a governance body needs be in place such as an IT Steering Committee with senior representatives from the business and the CIO, that oversees and act as a steward of the investment portfolio. ROI is clearly a metric, and not just projected ROI. In some cases, the Committee may appoint separate people to measure benefits, or to streamline the measurement processes, but this is not a requirement. What is required is that the business sponsor is held accountable.
And for those of you that hear people say that “their organization doesn’t measure return on past (IT) investments”, you should probably take note. Perhaps you need to sell some stock!
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