Having the right people overseeing the portfolio is also crucial. BankWest, says CFO Hughes, has seen a fundamental shift in the past few years. Now, he explains: "IT doesn't generally come up with a project and say, 'The business needs it.' Typically, the business identifies a need, and takes responsibility for determining the right way to resolve that need."
The Oracle ERP system is a case in point. Simply put, the business implications of ERP — such as change management, cultural issues, and accounting resources — were too big to be left to the IT experts. "IT becomes part of the feasibility and assessment team, and scoping team, but the project itself is not run by IT in any way," Hughes says. Certainly, IT plays a critical part in the ultimate steering committee and project team, he says, but the ERP project manager, who was required to build the feasibility and business case and build up a number of metrics, hailed from the finance department, not IT.
Follow-through, says Hughes, is crucial. As well as a post-implementation review, a benefits realization study is conducted, which involves monitoring progress for an extended period of time. "Depending on the life of the whole thing, it might be done over six months, it might be done over a couple of years," Hughes says, adding, "We try to keep the process fairly simple, so it's not a burden to the business."
Broadbent of Gartner says this is just as important as the initial investment decision-making process. Failure to instigate a "serious benefits realization or performance management process" is a major failure of companies, says Broadbent — causing trouble that can easily be avoided. There are, not surprisingly, plenty of "performance management" software suppliers that promise to help. She says such a process should not be afraid of pointing fingers. "I look to see: Who's responsible for delivering the benefits? What is the person's name? Is this tied to their performance and reward systems? Unless there is that kind of serious tracking, and then that is monitored on a regular basis, we find these things slip and slide, and people do not track appropriately at all."
Vendor Management
Technology may seem to possess a hyped-up life force of its own, and it's easy to take slingshots at IT vendors, but it's a mistake for companies to feel maligned. "I really think it comes down to our own discipline — it's up to us to manage suppliers adequately," says BankWest's Hughes. He believes companies can set the scene for ROI success by choosing the right supplier via a tight RFP or tender process, then building a contract with the right service level agreements (SLAs) for the installation period, as well as ongoing SLAs. "There's a big difference between the salespeople in the software companies and the technical deliverers," says Hughes. "The trick is to get into both of their heads and make sure you've got clarity from both," he says.
One way vendors try to reassure clients that they see clearly is through so-called ROI calculators. These days, any vendor worth its salt attends sales pitches armed with a method for estimating likely outcomes from inputs tailored to the customer's predicament. Meantime, a new breed of third party tools providers is emerging (see "ROI Consultants: Truth and Lies," below).
Usefulness depends on the type of project. ROI calculators are most useful for what Patwardhan of NIIT calls "procurement-type ROI" — where a company has already decided on a type of project but must identify the most effective way to execute it, such as through in-house development, outsourcing, or even "offshoring" to overseas developers such as NIIT. Calculators fall short when it comes to the wider strategic benefits. "No cookie-cutter calculator can help here — each project will provide business returns in different ways," says Patwardhan. "The devil is in the detail."
Adam Lincoln is a technology writer based in the U.K.
ROI Consultants: Truth and Lies
If a vendor's ROI calculator seems open to accusations of bias, a new breed of companies promise a more impartial approach to technology investment analysis. U.S.-based Alinean, for one, takes a "dashboard" approach that considers net tangible benefits, intangible benefits, and risk factors with software called ValueIT ProjectROI. Another US-based player is Nucleus Research, which provides pre- and post-deployment financial analysis and advisory services to help IT decision makers make the right moves.
"Unfortunately, we find many companies making decisions using methods that do not correctly evaluate benefits such as TCO or NPV," says Ian Campbell, Nucleus's vice president of research. "More seriously, there are numerous false 'marketing metrics' such as cumulative ROI (which dramatically overstates the ROI by using the sum of benefits over three years) and return on opportunity that consultants often promote but only serve to mislead," he says.
Nucleus says that without opening a spreadsheet, CFOs can use some key criteria to assess a project and the likelihood of ROI:
- Breadth: How many people will be helped by the application? The greater number of people, the greater the potential ROI.
- Repeatability: How often will people use the application? The more often an application is used, the greater the ROI.
- Cost: The more costly the task, the greater the benefit from automation or appropriate technology support.
- Knowledge capture: The greater the potential to reuse the information in the system, the greater the potential ROI.
Costs and benefits can be either one-time or recurring, so be sure to include them appropriately. Nucleus suggests following these basic rules when gathering and including costs in the calculation:
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