IT Investments: 5 Common Mistakes

There are benefits to a new IT project but the risks are higher than most investments. Here are five missteps to avoid.

David McLaughlin, President & CEO, Columbia Advisory Group

October 28, 2014

4 Min Read

As companies grow and their finances improve, smart management teams often look to invest in technologies that improve operations, worker productivity, and market knowledge.

Implementing new or upgraded enterprise software, cloud infrastructures, or big data reporting tools are some of the cutting-edge projects that are top of mind these days. If you haven't done a big IT project in a while, the benefits can be significant, but the risks are higher than many other types of investments.

[Digital initiatives are where the action is. Read How IT Can Spur Digital Innovation]

Here are some common mistakes you can avoid to improve your chances of benefiting from an IT investment.

Bad financials and business cases
People spend too much time building a detailed business case and associated financials that look great but have really bad assumptions. Make sure the assumptions are clear, and you understand what they are based on, e.g., cost, availability of resources, speed to implement, or level of effort.

IT projects are notorious for being over budget, so make sure you build in appropriate risk and contingency. One way to do that is "reality baselining" against similar projects internally to your organization or with industry peers that can help spot weaknesses in the expected financials or timeline.

Incomplete selection process
Taking shortcuts during the product selection process has been the death knell for many technology investments. Simple things can be lifesavers, such as making sure the major user requirements will be met, checking references, and investigating what infrastructure will be needed.

Very often a company will make an IT investment and find out a couple of months later that it missed a key requirement that needs to be augmented with other software, which could negate the benefits of the investment.

Underestimating impact of change on users
While it may make sense on paper to spend the money to implement the best software for your business, are your users going to be able to handle the change? Will it make them more productive and efficient in the short term? The long term?

It can take a lot of time and effort for a user group that has operated on the same system for a long time to be more productive on new systems; this could hurt company performance while they get up to speed. This happens quite often in divisions of large companies that are sold or divested to other owners or investors.

The new company does not have much time to decide what systems and platforms it will use going forward. It may look financially attractive to move from the big company systems to something smaller and less expensive, but many times the users can efficiently do their jobs with the current system. A new system -- while less expensive and more nimble upfront -- may impact productivity to the point that the savings are negated.

No clear understanding of technology integration
Much of today's technology can integrate with various platforms. But if you make a major investment in one area, it may cause significant impact and cost to change technologies that interface or exchange data with the new system.

Sometimes even basic dependencies get missed, such as deploying an important new piece of software and finding it doesn't support the operating systems or web browser versions that most employees use. It's critical that you understand how the technology you're investing in interrelates with technology you already have.

Logistics tail
The costs of long-term maintenance, labor availability, and frequency of upgrades can all impact the overall cost of the investment.

Quite a few vendors base product support costs on percentages of current market price, which they typically determine. What may seem modest at first may be very expensive three years from now. Vendors can be bought, sold, or change hands; the management team you buy from may not be in place a few years from now. And you may get new managers who want to "tweak" the maintenance costs or service model.

Open source software, for example, may tend to have a low upfront cost, but the labor needed to support the system over the long term could be hard to find or expensive in the future.

If your IT team is going to use an open source tool, you need to have short- and long-term alternatives mapped out if support isn't available or compatible down the road with other proprietary systems. It's vital to nail down the future costs of different alternatives as you are negotiating the upfront price.

Who wins in cloud price wars? Short answer: not IT. Enterprises don't want bare-bones IaaS for the same reasons they don't buy many $299 PCs at Wal-Mart. Providers must focus on support, not undercutting rivals. Get the Who Wins In Cloud Price Wars? issue of InformationWeek Tech Digest today (free registration required).

About the Author(s)

David McLaughlin

President & CEO, Columbia Advisory Group

David McLaughlin is a well-respected advisor, technology leader, consultant, and IT performance expert with a proven track record in many aspects of technology. He has worked extensively with private equity groups, venture investors, and senior management to evaluate and improve their investment in information technology. David has participated in more than 200 merger and acquisition projects, assisting investors with more than $3.5 billion in equity and venture investments.

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