InformationWeek
Defining The Business Value Of Technology
May 24, 1999
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Intranet applications are cheap and easy to build, but measuring return isn't simple
By Charles Waltner
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any companies have implemented some form of an internal IP network, known as an intranet. And many IT executives say developing the applications to deploy on these intranets is relatively easy. But measuring their financial benefits is another story.Just ask Robert Musacchio, CIO with the American Medical Association in Chicago. Musacchio says he's deployed 50 to 60 intranet apps for the AMA's 1,400 employees. These include internal Web services such as telephone directories, policy and procedure sites, and self-service benefits sites. He's never conducted a cost/benefit analysis for most of them.
That's because the primary advantages of his company's intranet applications--improving employee morale and the workplace environment--are difficult to quantify. "Because these applications are internally focused, it's been hard to get a rate-of-return figure," Musacchio says. "Also, we don't look at them in that way. We do them because it's what employees want."
At $10,000 to $20,000 apiece to develop internally, the intranet applications are so affordable that a strict return-on-investment calculation just isn't worth his time. "It would probably take me longer to figure out the ROI for these applications than to deploy them," Musacchio says.
Many IT managers and industry observers agree that intranet applications are some of the most difficult technology projects to analyze for ROI. The reason: Many of the most important gains are in "soft" dollars--from improving such aspects as worker productivity and morale, decision making, information sharing, and time to market. Such benefits aren't easy to quantify, because they don't directly generate revenue.
Technology managers say their companies often earn back the money spent on intranet development costs in one to three years in savings from expense reductions in widely divergent areas, from printing and postage to employee productivity. For example, the AMA's Musacchio says a self-service employee-benefits site, which provides information on benefits and lets employees pick health-care, day-care, and retirement investment options, was built for "almost six figures." Musacchio figures it provided a 40% return on investment, based on the time saved by human- resource managers who don't have to answer employees' questions about these topics because they're answered by the application.
Bonus Savings
The soft savings are usually chalked up as an added bonus, but not always. There are ways to quantify soft-dollar benefits for intranets, but they're trickier and often less accurate than hard-cost calculations (see sidebar story, "A Hard Look At Soft Benefits").
It's not surprising, then, that many IT managers don't bother measuring the value of a new intranet application. They just assume it's giving them a good bang for the buck--what Gene Phifer, research director at Gartner Group, calls an intranet faith trip. "People have faith that intranet applications will deliver a good return on their investment," Phifer says. "And in most cases, their faith is rewarded."
Phifer emphasizes that there's no single correct ROI number companies should aim for when assessing the value of an intranet app. But he points out that returns on investment ranging from 40% to 60% over one year are far more believable than some inflated claims that put payback for intranets in the hundreds or thousands of percent.
continued...page 2, 3
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