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Return of investmentOnly a few of the many companies are able to reap the rewards from IT investments
Differentiate to win! Seems to be the mantra for success. The urge to be different, prompt businesses, to increase their investments on Information Technology (IT) projects.
However, the success or failure of an IT project cannot be judged at once. A number of rudiments are considered to evaluate the success of an return of investment. They are time, budget and specifications. Though the success of an IT project is largely judged on these parameters, the ultimate ball lies in the hands of the business users to whom it is intended to add value.
There is a traditional belief in the corporate community that if an IT project materializes in terms of time, budget and the required features and functions, it is bound to be successful. However, this is a proposition that the businesses consider hard to match. According to the Standish Group consultancy study of IT projects, it is observed that only 29 percent of all the IT projects in 2004 were successful.
When success meets failure!!
The businesses have not been able to make much out of IT investments. This is despite the deployment of applications like CRM software. One of the major reasons for return of investment failure could be unsuccessful assimilation of the IT project specifications with the companys core business processes.
However, many a times, the IT project that was declared a failure on the basis of time, budget and specifications, would still be successful if it adds value to the ultimate users of the technology. Lets consider an example of a financial services company. It invested in an IT project that would create, examine and install collection strategies and eventually improve its debt collections. However, the project took a long haul of six months to complete and the costs of the project went up by twice the original estimate of USD 5.7 million.
Despite this, the project was well received after 13 months of its deployment, saving USD 33 million to the company, which would otherwise be written off as bad debts. Moreover, the project finally resulted in a 50 percent improvement in the companys debt collections.
Reaping benefits
The above example helps us understand that the true benefits of an IT project cannot be felt at once. But it would rather consume sufficient time in reaping the ultimate benefits to the users. Other than the traditional measures to judge IT projects on time, cost and product features constraints, there is another criterion to review the long-term success of an IT investment.
A new standard to assess the long-term implications of an IT investment on the basis of use, value and learning is very prominent:
Use: The purpose of this element is that the return of investment project should appeal to the intended user.
Value: The IT investment should also enhance value to the business in terms of monetary gains.
Learning: The project should augment internal organizational growth and should prepare it for external pressures.
Of the above metrics, many did not consider the learning aspect in judging the success of an IT project. The IT managers and other company shareholders believed product, use and value to be the best criteria for evaluating the success of an IT investment. The highest priority is set to the product, then to its usage and later to the value it generates to the intended user.
In the early stages of project implementation, its success is largely judged on the basis of product features and functions, time and budget. But after the installation of the project, what matters most is its use and value to the intended user. However, these aspects cannot be judged unless the project is completed in the traditional sense of time, budget and specifications. Therefore, in order to reap the true benefits of an IT investment, IT managers should concentrate their efforts on product, use and value computations.
Furthermore, if the businesses wish to garner long-term profits from IT investments, they should constantly analyse their IT projects both during and after their deployment.
Learning from the past
It is always recommended that IT managers review their experiences in the past before investing in a new IT project. This would help them draw valuable conclusions to achieve potential gains from IT investments. More so, they can partially judge the success or failure of such an investment much early by comparing the past and present business scenario.
The project reviews often help businesses in correcting their future IT investments. If the project went haywire in the past, IT managers can exercise special caution so that the future projects are not unsuccessful. Similarly, if the project was successful, they could repeat the same success now.
The ROI model
The conventional model for Return on Investment (ROI) considers only the cost and time taken for project completion. The model is not relevant in the present environment.
A much broader view is therefore necessary. New models should consider associated risks such as distraction of management from core business; low organisational morale induced by failure; dissatisfied customers and suppliers; and lost business opportunities.
A more comprehensive approach
There is the multiplier effect of failure, it is not just the IT
expense, but also the resultant hand-offs and inefficiencies, says Garcia of Tower Group.
Its time IT managers realise that return on investment calculated on the basis of cost of technology deployed is no longer sufficient. It should be understood that the success of return of investment is dependent on the quality of infrastructure developed as well as the people involved in the implementation of the project. Therefore an IT project might be a failure despite technology delivering its objective
Every organisation is made of three elements; technology, people and processes. The success of any project, therefore, is a function of these three elements. Hence the success of one of these elements doesnt guarantee the success of the project. The three elements need to provide synergy to succeed.
Conclusion
Ensuring a closer link between IT value and business success, demands a considerable attention to the measurement of benefits in comparison to IT investments. Hence the focus of companies needs to be on optimising IT investments rather than increasing the quantum of investments in IT.
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