Measuring the Value of Investment IT
Nothing inhibits IT investment more than an inability to measure benefits and
keep control of costs. Senior management in many large organisations have become
intolerant of sizeable investments that do not demonstrate a tangible return and
where costs have typically overrun. Measurement is the key to restoring faith in
IT and only total transparency will satisfy a critical gaze.
The
contributions that IT makes to an organisation are of three types
- Cost reduction – typically through labour displacement. This is the traditional use of IT where benefits are relatively easy to demonstrate simply though the loss of headcount.
- Value creation – enabling new processes, entry to new markets, new channels to existing markets, and other activities that add value. The benefits from projects that create value are notoriously difficult to measure. However, it is widely believed that ultimately all value creation must be reflected in transactional activity – and here lies the key to measuring the benefits from such projects.
- Knowledge capital – this is closely correlated with the way an organisation uses knowledge and information and is seen as the difference between the market valuation of an organisation and the value of its hard assets. Deliberate transformation to more knowledge- and information-oriented activities often has a direct effect on share price – the ultimate goal for many CFOs and CEOs.
IT Governance is key to implementing the metrics that are instrumental in cost control and measurement of benefits, and particularly portfolio management. Without supporting systems IT management cannot exercise control and report on the benefits that senior management needs. There is also clearly a need for management to extend thinking beyond the classical cost-saving role for IT, which is now showing diminishing returns. Competitive pressures and the need to use IT to gain the edge are steering organisations’ direction on spending. IT must now be viewed as a necessity and given the same priority as other core expenditures, not viewed as a risky overhead.
Article by:
Christopher London
Principal Consultant
Hudson IT
Tel: +44 (0) 20 7187 6179