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Many business leaders ask us for advice on how they can make wise IT investment choices that don’t deplete capital expenditure budgets – especially where implementing new technologies or services is concerned. 

A great way to help you make these types of decisions is to focus on the overall return on investment (ROI) from the initiative. The numbers don’t lie, and they usually help illustrate whether or not an investment is worth your time, money, and effort.

However, ROI on its own doesn’t always tell the full story. 

ROI Defined for IT

ROI is used to measure the financial impact of IT investments and helps justify various IT projects. The numbers also help determine project returns at various stages of the project lifecycle.

The formula used to calculate the return divides the net return of the investment by the cost, expressed as a percentage.

ROI % (return - investment cost / investment cost x 100) 

Comparing the ROI of different projects helps illustrate which ones carry a greater potential for success. It can be a valuable tool for executives, shareholders, and stakeholders.

Projects carrying higher ROI percentage are more likely to succeed as they tend to fare better financially than those with lower ROI.

However, ROI models are developed to include dependencies that impact the results shown within the model that should be taken into consideration¹:

• Errors do happen, and sometimes results appear to point to wrong conclusions.
• Calculations can be manipulated intentionally or unintentionally.
• Measurable results may come with questionable attributes.
• Benefits may be the result of more than one process improvement.
• Accuracy of costs and benefits may not be as certain as initially projected.
• Project success and the realization of the projected ROI is often directly tied to the initiative having clear goals, objectives, and requirements, having ongoing project management oversight, and being supported by executive leadership.

Costs vs. Benefits

When it comes to projecting costs and benefits of a potential IT project, a high degree of accuracy for project success may be difficult to gauge. Additionally ROI may not be capable of illustrating the total value of a project or a strategic initiative.

Because of this, it’s a good idea to broaden the overall scope of project analysis.

Considerations for Calculating a Big-Picture, Broad-View Analysis

It’s fair to say that information technology encompasses the technology, the department that manages the technology, and the department that will be the end user of the technology. All can be considered vital to a business that seeks to achieve it’s growth goals, and their value is determined by the success or failure of meeting those goals.²

For new project considerations, the process usually goes something like this:

• The company sets its goals.
• Then, it sets its objectives for the new project and its mission.
• Next, IT designs the project services and/or products that align with the mission.
• Based on the creation and implementation of the project, the outcomes are changed operations and new benefits.
• Lastly, the changed operations result in either the successful attainment of the goals and mission or the failure of the pursuit.

In this scenario, value can be attributed to the IT department for the direct completion of their new project, to the end users that adopted and used the new technology as expected, and to the new technology that helped make the project a success. 

So it's important to point out that value is determined over the lifespan of many different projects even though it may not show up in the ROI calculation. ROI gives a good illustration of a single project, but it does not prove the value of IT as a whole.

Additional Benefits Not Measured by ROI

The amount of time that is spent on a new project can be quite high depending on the scope of the project. Creation, implementation, and project management can eat up many weeks or months – and the biggest projects can even take years to complete.

The overall amount of time for any given project is fairly easy to compute. But these time expenditures can be offset by the amount of time saved by the new project.

Time saved is harder to compute and is likely to be more of an estimate. However, there is no doubt that each time a new project is finalized, there are many hours that are saved as a direct result of the new process.

Another benefit that is realized after a new project is completed is peace of mind. Each time a new process is developed after the successful completion of a project, work becomes easier, costs are often cut, and revenues tend to grow.

A great example of this is automated automobile assembly lines. The assembly line is one of the greatest inventions of the 20th century.³ 

At first, it was an idea, and it quickly grew into a methodology that increased efficiency and output. Almost every industry adopted it, and it continues to evolve today with the introduction of new technologies, AI, and machine learning. 

So when it comes to creating a winning formula for the consideration of your next IT project, don’t rely on the ROI numbers alone. Adding a hefty helping of value determination will lead to a more accurate picture that highlights the possibilities born from the completion of your IT project.

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