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12/17/2003
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SmartAdvice: Tracking IT's Value

The Advisory Council suggests you consider new approaches to managing these initiatives: Measuring IT investments, Windows rights management, and selecting vendors.

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


Topic A: What metrics should we use to measure and report IT's business value to the company?

Our advice: Most businesses view profit contribution as the ultimate metric of value. In nonprofit and government institutions, value is measured by objective progress toward a vision or a goal.

Whatever the milieu, IT departments need metrics that measure IT's contribution to meeting and advancing the organization's objectives. From a business perspective, the two most basic approaches are the:

  • Contribution of IT applications toward achieving business goals, and the


  • Financial management of IT expenditures.

Contribution of IT Applications Toward Achieving Business Goals
Metrics such as systems performance, capacity, and applications delivery are essential for day-to-day management of IT, but as such are of little value to business management. For example, 99.999% uptime is a major accomplishment, but what does it mean in terms of business? Examples of business-relevant metrics include:

  • Incremental revenue generated by E-commerce;


  • Sales' productivity improvements;


  • Reduced costs in order fulfillment;


  • Reduced inventory;


  • Incremental revenue resulting from customer relationship management; and


  • Improved customer service and satisfaction


  • Call-handling time;


  • Complaint-resolution time;


  • Web-based customer service; and


  • Reduced paperwork.

As a rule of thumb, IT managers need to translate technical results and features into business benefits.

IT Expenditure Management
Because IT is often seen as a back-office function that spends money but doesn't generate it, IT managers need to get out in front of expenditure management through the:

  • Efficient use and management of resources, and the


  • Profitable incorporation of services.

Efficient Use And Management Of Resources
The efficient use of resources requires a well-managed operational budget. The budget should be described in terms meaningful to the business. And you must be prepared to explain--and justify--any large unfavorable variances between actual and budgeted expenditures.


Related Links

The Balanced Scorecard Institute

Control Objectives for Information and Related Technologies (COBIT)

IT Infrastructure Library

Capability Maturity Model Integration


In addition to financial metrics, there are metrics that assess management effectiveness and the success of IT governance processes. These include the 34 Control Objectives for IT (COBIT), IT Infrastructure Library (ITIL), and Capability Maturity Model (CMMI). Service-level objectives should likewise be expressed in terms meaningful to the business. Finally, Total Cost of Ownership can be used to demonstrate sound financial and operational management of the technology.

Profitable Incorporation of Services
Return-on-investment analysis connects IT expenditures with their contribution to the company's business goals. It can be used both to justify new services and applications, and to measure their success after implementation. ROI analysis requires the diligent use of the IT budget, and agreed-upon correlations to business metrics.

Benefits
Driving Business Value: Reporting of metrics meaningful to business management is essential to IT being recognized for its contributions to achieving business objectives.

Advancing Your Career: IT managers must invest time and effort in preparing appropriate presentation material. Compiling appropriate metrics, and communicating them to business management, announces you as a strategic partner aligned with business. --Humayun Beg

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