In today’s tumultuous global economy, investing in new projects can be a major challenge for businesses, especially with regard to investing in IT.
The reasons for concern are many: technology news is full of examples of failed IT projects with disastrous budget consequences; the constant development of IT often makes it difficult to predict if the IT project itself will become obsolete within months; changing trends and leaders in the global marketplace make it difficult to develop a long-term IT project plan without fear of a competing technology or company taking over and leaving you in their wake. In other words, in the ever-changing world of technology, it is difficult to commit.
These are some of the reasons why calculating the return on investment (ROI) prior to instigating a project is pertinent for successful IT management.
Determining the ROI for an IT project is crucial, not only for a company’s short to medium-term plans, but also for assessing both the tangible (financial) and intangible benefits of a particular project. ROI is essential for IT planning because it propels your company forward, outlining both the risks and potential benefits of a new endeavour.
Why is ROI important?
Financially, ROI assists with your IT schedule by determining the costs of, and potential profits from implementing a particular project. For example, it is considered fair to recuperate the funds invested in a project within a period of 12-18 months. ‘Non-financially’, ROI can help define a new strategy for the company, assist with better positioning of your organisation, with obtaining a competitive advantage as well as with improving client and stakeholder relations. These are informally called the ‘intangible’ benefits of solid IT management.
Hence, estimating the ‘tangible’ and ‘intangible’ benefits of an IT project makes all the difference – ROI helps you assess the overall value of your potential endeavour.
What to consider before calculating ROI?
Before you can engage in complex computations regarding your potential IT project, as a decision-maker, you should consider several important matters:
- What is the scale and scope of the project? What are the desired outcomes?
- Is it a temporary or short-term project, or a long-term commitment to a new product or service?
- Determine the total cost of the project and the value it is expected to bring to the business, tangible or otherwise
- Is the technology you are considering cutting edge? Is it in sync with the standards of your business/your IT department/IT project?
- How will IT planning for the foreseeable future impact your company’s relationship with its stakeholders? Shareholders? Clients? The general public?
- What are the opportunity costs? How much money and what resources will you have to spend in relation to the IT project, assuming it is ongoing?
- Is there an obvious way of reducing the costs of the IT project and increasing revenue, independently of ROI estimation?
Once you have taken the above factors into consideration, you can start calculating ROI. However, bear in mind that ROI is hard to accurately calculate, particularly in the fast-paced and ever-changing world of IT. If ROI stretches out too far time-wise, the IT project may well fall behind the curve, with the market overtaking you, causing significant losses. This is but one of the reasons why engaging an IT service provider has become so popular. Many companies find it be easier and less costly to pass their IT activities on to an external service provider, avoiding major investments in hardware, software and staff recruitment and training. In any case, make sure you are familiar with all the aspects of IT management prior to making an investment which could seriously impact your company’s long-term plans.