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3/24/2004
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SmartAdvice: Measuring Business Value Of IT Investments

It's hard to quantify the return on IT investments, but it's in IT's best interests to help in the documentation effort, The Advisory Council says. Also, control VPN access from home computers to improve security, and look at what you want from your system before deciding whether to delay server upgrades.

Editor's Note: Welcome to SmartAdvice, a weekly column by The Advisory Council (TAC), an advisory service firm. The feature answers three questions of core interest to you, ranging from career advice to enterprise strategies to how to deal with vendors. Submit questions directly to smartadvice@tacadvisory.com.


Question A: What approaches are effective for measuring the business value delivered from various IT investments?

Our advice: Tying IT expenditures to the business value they provide has long been a Holy Grail for senior executives. It's an issue pursued from two distinctly different viewpoints. Especially in tight economies, CEOs and CFOs suspect they're spending too much on IT for the value they receive, and seek ways to bring spending into alignment with that perceived value.

Not surprisingly, IT executives often believe that IT is under-funded for the value it delivers. As always, reality lies somewhere between these opposing viewpoints, but finding it has proven to be very difficult. A major stumbling block is the inability to meaningfully measure IT's contribution to the prosperity of the business it supports. Conversely, costs are easy to capture, providing a convenient fallback for measuring IT performance, but bearing no relationship to the results driven by IT expenditures.

Challenge Of Assessing Benefits
While costs are easy to track, measuring tangible benefits takes considerable effort. Unlike costs, there are no standard formulas for capturing benefits. Each process has its own unique benefits, and each benefit identified is likely to require its own custom method of measurement. Unfortunately, the best and largest benefits are often the ones that are the hardest to measure. As a back-office operation in most companies, IT tends to be several layers removed from the business outcomes enabled by its services. For example, IT may implement a new customer-relationship management application to enable the company's marketing and sales organizations to better serve their customer base. Presumably, the end result is happier customers who buy more products from the company. However, there are likely to be many steps and variables between the CRM system and this end result. Moreover, when revenue increases, was the major driver the CRM system, a marketing program enabled by that system, or the newly hired vice president of sales and marketing?

Measuring The Value Chain
If the company's sales and marketing processes are carefully documented, measured, and managed by their respective organizations, the questions posed above can probably be answered, and a fair share of the benefit can be apportioned to the new CRM system.


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Although business-process management is rapidly gaining favor, it's likely that most corporate processes remain undocumented and unmeasured. While documenting internal business processes is ultimately the responsibility of the business areas owning and using those processes, IT has a vested interest in supporting and even assisting in the documentation effort. Ideally, a business process would be fully documented and measured before making any large IT investments in that process.

Creating an "as is" map to document the process's current state before implementing a new IT system enables the business area and IT to better predict benefits and to establish a baseline from which to measure those benefits. In the case of the example of the CRM system, the analysis may determine a per-customer value based on current purchasing trends. The goal of the CRM system and the activities it enables may be to increase that per-customer value by a given percentage. The change in this value can be measured after the system is in operation, and also can be translated into a direct revenue value for the company.

-- Ian Hayes

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