Calculating ROI on Information Technology Projects

ROI (return on investment) is a widely used measure to compare the effectiveness of IT systems investments. It is commonly used to justify IT projects, but can measure project returns at any stage and be used to evaluate project team performance and other relevant factors. Definition of ROI The basic ROI calculation is to divide the net return from an investment by the cost of the investment, and to express this as a percentage. ROI, while a simple and extremely popular metric, may be easily modified for different situations. The ROI formula is: ROI % = (Return – Investment Cost)/Investment Cost x 100 Using ROI within IT Projects Comparing the ROI of different projects/proposals provides an indication as to which IT projects to undertake. ROI proves to corporate executives, shareholders, and other stakeholders that a particular project investment is beneficial for the business. A project is more likely to proceed if its ROI is higher – the higher the better. For example, a 200% ROI over 4 years indicates a return of double the project investment over a 4 year period. Financially, it makes sense to choose projects with the highest ROI first, then those with lower ROI’s. While there are exceptions, if a project has a negative ROI, it is questionable if it should be authorized to proceed. ROI may not be useful in every IT project. Below is a list of examples where calculating the ROI may not be appropriate: Expenditure such as IT consumables, replacing broken PC’s Short duration maintenance projects that can be completed in less than 1 month. Projects that do not produce cost...

10 Steps to Boost your ROI through Better Business Analysis

The vast majority of enterprise IT projects simply do not provide the ROI that was specified in the business case.  Look at some of the recent quotes concerning this subject. “78% of Information Systems projects failed to realize even 50% of the originally identified benefits.”   Source: Management Today “Only 40% of CFOs find that their IT investments are producing the returns they expected. ”     Source: Gartner, How to Optimize IT Investment Decisions “30-40% of systems to support business change deliver no benefit whatsoever.”   Source: OGC, Successful Delivery Toolkit There are many reasons why projects do not achieve their anticipated value. According to our research, the top five reasons why projects do not achieve their expected benefits are: Lack of business alignment Poorly defined requirements Stakeholders are not engaged Lack of focus on achieving business results Failure to mange organizational change Poor business analysis is at the root of all of this problem.  Many organizations have spent many years improving their maturity of their project management function but have done little to address business analysis.  A partnership needs to be built between the project manager and the business analysts assigned to the project. The project manager focuses on completing the project on time and on budget.  The business analyst focuses on delivering business value and ensuring that the stakeholder needs are met.  Business analysis is much more that just defining requirements; it must also address: Business Alignment Stakeholder Needs Solution Transition Organizational Change Process Improvements Benefits Realization We have developed an infographic that defines 10 key steps that organizations can take to boost ROI on enterprise...

Investment in Business Analysis Pays Off Big

Demand for good business analysis skills is high, and for good reason. An investment made in improving business analysis capabilities can have huge payback. Simply stated, organizations that have not developed strong business analysis capability are at a competitive disadvantage. Enterprises with strong business analysis capabilities have achieved many benefits, including: Implemented solutions that meet business needs Increased the ability of the business to adapt quickly to changes Reduced risk, complexity, redundancy Aligned business and IT Enabled re-use and faster time-to-market Presented one face to the business (customer) Increased business value Conversely, studies routinely conclude that poor business analysis is the root cause of many project failures, resulting in, among other things: Incomplete requirements capture and definition Poor strategic alignment leading to an inaccurate business case Solution design that does not deliver requested features and functions Applications that are not what the business needs The International Institute of Business Analysts (IIBA) describes business analysis as “the set of tasks and techniques used to work as a liaison among stakeholders in order to understand the structure, policies, and operations of an organization, and recommend solutions that enable the organization to achieve its goals.”   IIBA describes business analysis as a discipline, rather than as the responsibilities of a person with the job title of business analyst. According to IIBA, business analysis may be performed by people with various job titles such as systems analyst, process analyst, project manager, product manager, developer, QA analyst, business architect, or consultant, among others. In this article, I may refer to a business analyst but I am actually referring to the discipline of business analysis. Anyone...

Principle # 12 – Manage the Enterprise Portfolio to Achieve Business Results

This is the twelfth article in a series of blogs discussing individually each of the Year after year, enterprises spend a considerable percentage of their budget on projects. Most of these projects have significant IT components; however, the results for many of the projects are less than desirable.  CIOs are under constant pressure to reduce IT costs and add value to the bottom line through IT products and services and are constantly searching for new ideas and approaches to improve IT performance. Some of these approaches include outsourcing, implementing layoffs, allocating costs to user groups, mobile computing, cloud based computing, standardizing technical platforms, improving project management capabilities, building enterprise architectures, implementing data warehouses, and providing web-based processing. The list goes on and on; however, the challenge is for CIOs to use the best strategies with the least risk and the highest payback. Performing this analysis and making these decisions is where portfolio management fits. Portfolio management is used to manage the demand for IT projects— it provides the executive team with a system-wide view of projects across the enterprise, which makes it possible to make informed decisions about where investments should be focused.  Strategic goals are translated into tactical programs with supporting projects through the portfolio management process. By aligning investments with projects that deliver outcomes to achieve strategic goals, portfolio management leads directly to improvements to the bottom line. The promise of project portfolio management is that for a given risk level, there is a specific mix of project investments that will achieve an optimal result. Given the benefits of portfolio management, why aren’t all organizations successfully implementing...

Principle #11- Use Requirements to Validate and Assess the Solution

This is the eleventh article in a series of blogs discussing individually each of the 12 Keys For Successful Enterprise Projects, published in my blog of Tuesday, June 26, 2012. A project can be on time, within budget, and deliver everything that was asked for, and still not solve the business problem. In fact, the product may not even be used by the business in the end.  It is the role of the business analyst to work with the stakeholders to validate and assess the solution to ensure it meets the business needs. During design and development, the business analyst plays the role of customer representative on the solution team. The analyst works with the solution team to make sure that the results of the development effort still solve the business problem. During design, the business analyst assists the systems analyst to make trade-off decisions among various technical solutions, bringing any impacts to the solution document back to the business for review. During the build and early testing phases, the business analyst makes sure the solution document still matches the solution. During late testing stages—system and acceptance—the business analyst prepares test cases for users, and participates fully in the acceptance test stage. After the product is delivered, the business analyst makes sure the solution is successfully transitioned into the business environment. Enfocus Requirements Suite™ is designed and fully embraces the 12 principles discussed in this article. Enfocus Requirement Suite™ enables solution teams and stakeholders to work together to deliver successful enterprise solutions. [cta...