CIO Forum: IT's Value Transcends ROI

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September 22, 1997

CIO FORUM:
IT's Value Transcends ROI

By Bill Kelvie
IW 500 slug he world of IT used to have long cycle times, a growing workforce, and the ability to depend on monolithic, stable technology. That world has changed drastically. Technology is now evolving at "Internet speed," and with that have come the dual challenges of maintaining high-quality staffing and ensuring that IT is adding value to the overall business.
In this new, fast-paced environment, two of the central questions that CIOs inevitably must address are these: "How should the company measure the value of its IT investment?" and "Which of the many good opportunities available should we pursue with our available resources?"

Bill Kelvie is executive VP and CIO at Fannie Mae in Washington.

Much has been written to suggest that return on investment (ROI) is an excellent measure when the costs and benefits of a project are tangible. In today's environment, however, the rapid pace of change and the multivariate dimensions of costs and benefits significantly narrow the utility of ROI as a single measure.
At Fannie Mae, our mission is to provide and expand home-ownership opportunities for all Americans, and technology has allowed us to do this. We know there are more potential home owners who need help, and we will use technology as the tool to lower the costs involved in the mortgage process by as much as $1,000 . But the true value of the IT investment-the increase in the number of home owners and the improvement that brings to communities-can't be measured by a simple ROI calculation.
In evaluating a business decision or strategy, ROI should be used as one of a number of indicators. For example, our technology teams have implemented projects with extremely positive rates of return, and some with less attractive returns-because in many cases, intangibles exist that are not captured in the calculation.
In addition to ROI, it is important to consider net present value, the ability of the organization to leverage an investment over time, the project's contribution to the long-term infrastructure strategy, and its value to a company's overall mission.
Net present value is especially important because it establishes the magnitude of the expected return in today's dollars. There is a limit to the number of projects that any IT organization can accomplish in a given period. And the project with the highest re turn on investment may deliver less in terms of net present value.
Invest To Reduce Costs
Potential reuse must also be taken into consideration. At Fannie Mae, we have been working to deliver business services and capabilities that can be leveraged across product lines. Our data warehouse facility and Extended Enterprise network gateway, for instance, service many applications.
This kind of infrastructural investment reduces overall development and maintenance time and costs, the sum of which drives an increase in ROI.
Because CIOs now see that ROI cannot stand alone as an indicator of potential success, companies must work to develop a methodology for valuation that explicitly recognizes the intangible aspects of value that are so often the driving force behind decisions.
To keep up with competition, companies and organizations around the globe continue to upgrade and streamline their business processes. And as the pace of technology development quickens, ROI will increasingly bec ome a key focus-but not the solitary focus-when a variety of new and as yet unseen business decisions are being made.

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