A recent article in CIO magazine indicated that Return on Investment (ROI) metrics are driving more IT project decisions than the formerly popular metric of Total Cost of Ownership (TCO).  http://www.cio.com/article/331763/TCO_versus_ROI   CIO magazine reports that a recent survey indicated that in the past year, 59% of respondents said they rely on ROI calculations, compared to 41% that relied on TCO.  It is forecasted that for the coming year this will grow to 62% relying on ROI and only 38% relying on TCO.

The Good News:

The shift in focus from TCO to ROI is a great step forward for CIOs.  It demonstrates the growing recognition that we need to consider both the costs and the benefits we expect to receive when making IT investment decisions.  This indicates a subtle shift from CIOs focusing on delivering technology to ensuring benefits realization from the use of technology.  This shift in focus is a great first step for improving IT’s success in delivering real value to the organization.

The Bad News:

While it is great that CIOs are now considering the amount of benefit they expect to receive when making investment decisions, there are still many challenges ahead.

For example, there is little evidence that the forecasts they use for ROI calculations are appropriate. 

• In the CIO article, “TCO versus ROI” http://www.cio.com/article/331763/TCO_versus_ROI , “Those metrics help companies choose how to spend their money.  But in the decision ultimately made, ‘a lot of healthy business judgment is involved…You can prove anything you want with a spreadsheet…’”

In my experience working on numerous IT projects, many of the business case and forecasted ROI metrics make a lot of assumptions that are often based on little evidence and rarely hold true.  Many times the assumptions are intended to put the project in the best light possible in hopes of securing project funding. 

One of the biggest assumptions that is often made is that the system will have full user adoption, and thus the forecasted return should be considered without any correction factor or weighting for adoption.  However, evidence indicates that full user adoption is rarely the case.

• According to the Corporate Executive Board’s CIO research (Major Initiatives for 2008) https://www.cio.executiveboard.com/Public/CurrentResearch.aspx#03, “Up to 50% of applications in companies’ existing portfolios are significantly underused”.  It is estimated that this low user adoption results in, “value erosion in the ‘last mile’ of IT delivery forfeits 25% of potential business productivity gains.”

Ideas for Improving ROI:

While I applaud CIOs for taking the first step to IT success by recognizing that ROI is key, there is still a lot of work to do.  Here are a few key questions that CIOs need to consider for ensuring they achieve the ROI they have forecasted:

ROI Measurement and Realization

• Who is accountable for ensuring ROI targets are achieved?
• When will ROI be measured?  Will it be measured at multiple points in the future or just one?
• How will it be measured?
• What are the benefits/consequences if ROI targets are achieved/missed?  Who will receive these benefits/consequences (CIOs, IT leaders, Project Managers, End-Users)?
• How do our ROI forecasts change if we adjust them for different levels of user adoption?  How will these changes impact our IT funding decisions?

Process Changes

• What new things will you do after the system is deployed to drive user adoption?
• What resources will be required to drive full user adoption?
• What are the reasons people do or do not adopt the system…and how do you know?
• What new skills, tools and techniques (other than the stalwart favorites of communication and training) will you need to ensure you have full user adoption?

Closing Thoughts:

There are many factors that influence actual ROI that is achieved after a system goes live.  Shifting focus from TCO to ROI in decision making is a great first step.  Now we need to understand the additional changes and actions we need to take to make sure we achieve our ROI.  This requires us to rethink our current project structures, responsibilities, and activities.  Accountability needs to be assigned for ROI.  Those accountable (IT leaders) and those responsible (end users) need to be properly rewarded for their role in driving adoption and ROI.  We need to expand our activities from merely focusing on system delivery to also focus on driving user adoption. 

We also need to recognize that the same people who are experts in requirements gathering, process mapping and system development are not necessarily the right people to help address the organizational and people issues (such as individual and group behavior) that impact user adoption and ROI.  To address the organizational and interpersonal issues we should look to the fields of Organization Development, Industrial Psychology, and similar areas that have years of proven study and success in addressing the non-technical issues that affect individual, group and organizational performance.