A while back, FutureSight Consulting coined the concept of "4 P's for approaching the CFO" in reference to how IT managers and tech vendors are influencing senior management IT investment decision-making by portraying a proper ROI analysis. The 4 P's are Professionalism, Practicality, Proof and Perspective. In short, you need to pace CFOs with Professional, "numbers-driven" presentations. They like to see Practical analyses that they can run different scenarios against. They also require Proof, or reference data to backup claims and assumptions, and appreciate an independent Perspective rather than biased self-represented analyses.
Now, we are beginning to see another trend within the executive rank: a mandate for a 5th "P" before IT investment dollars are allocated. We are calling this 5th P "Performance". CFOs are starting to say, "I want to see demonstrated performance over time against your promised ROI. Before I sign off on this, I would like to see how you are going to measure against this ROI projection, and review this with you at different project milestones." In short, CFOs are beginning to desire ROI performance measurement conducted over the life of technology initiatives. So, how are organizations and the technology vendors who support them responding to this mandate for the 5th "P"?
According to a number of recent studies, a great percentage of IT organizations are making ROI promises, but very few are measuring against these ROI promises over time. What's the problem with this scenario? The simple fact is that what is not measured is not managed, very often resulting in dramatically different results from the original forecasted ROI analyses. This statement is most unfortunately illustrated by a recent Wall Street Journal article (WSJ, Sept. 23, 2002 ), highlighting a survey of 22 companies that purchased Siebel Systems Inc. software. It was found that 77% of respondents said they believed they hadn't received a positive return on the investment. These customers had expected a positive ROI, and hence were less than satisfied with their Siebel CRM initiatives. Siebel did mention the report was "highly flawed" and "statistically insignificant."
In these situations where expected ROI is not realized, the vendor is not the only party that suffers. The IT management responsible for project performance also takes a major blow in terms of credibility and trust for future technology initiatives. So, why aren't IT organizations and the vendors who support them implementing ongoing ROI performance measurement against technology initiatives? Here are some of the common excuses:
- "We lack the know-how and resources to do proper ROI measurement"
- "It takes too much time and money to measure ROI, and we don't know if it's worth it"
- "We don't know what to measure"
- "There are too many things to measure, and how do you measure for uncontrollable factors"
- "We can't get the business stakeholder time and support for doing this measurement properly" and
- "We don't want to hang ourselves if we don't meet our ROI targets"
On a positive note, we are seeing a minority who are now either embracing or gearing up to embrace the challenges of conducting ongoing ROI performance measurement because they understand the potential benefits – on both the part of the organization and of the technology vendor. A few of the benefits include:
IT Management Benefits
- ROI Performance Measurement ensures projects are more financially successful because they are more actively managed from a financial perspective
- It enables alignment of technology initiatives with overall business strategy
- It allows IT stakeholders to see how their activities impact directly on financial targets
- It helps to prevent project disasters when proactive financial monitoring is in-place
- It supports IT and business management in making corrective decisions when ROI projections go awry
- It positions IT management for more share of senior management attention over time, and additional investment dollars, when they are consistently delivering on financial targets
Technology Vendor Benefits
- ROI Performance Measurement ensures greater loyalty in customers when they are achieving expected ROI performance
- It provides an incredible source of rich feedback for understanding technology impact, and how to enhance customer business value over time
- When positive ROI is demonstrated, customers are more inclined to investigate and purchase additional vendor solutions and offer good references
So, if you currently are not conducting ROI performance measurement, you might wonder where to begin. Start by shifting your mindset. Abandon ROI justifications just to obtain your technology initiative funding (or the order, if you are the vendor). Extend the outcome of this upfront analysis by establishing ROI metrics and key performance indicators to monitor against over the life of the initiative. You will achieve better project success and ROI results if you follow this strategy.
Bruce Scheer is the Founder of FutureSight Consulting, a leading developer of ROI methodologies, modeling tools, white papers and case studies for technology initiatives. He can be reached at email@example.com