Project Management Institute

ROI r.i.p.?

WORLDVIEW

BY SARAH PARKES

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With information technology systems now pervading almost every business activity, many professionals question the value of monitoring return on investment's restrictive metrics.

We've all clinked champagne flutes at the project wrap party, congratulating ourselves on the success of our latest information technology (IT) implementation. We've not only brought the project in on time and within budget, we've measured its value to the company against the mother of all metrics: return on investment (ROI).

Stop right there. ROI has been the mantra of IT project evaluation for so long that most of us have never dreamt of questioning it. But new research from the United Kingdom reveals that this near-ubiquitous standard is fast losing its meaning in the modern business environment, where IT systems permeate virtually every aspect of corporate operations. “Back in the old days, most IT systems simply automated existing activities,” says Paul Bevan, director of strategic marketing with Unisys UK. “That made it very easy to calculate an ROI based on improvements in speed and accuracy. By contrast, today's systems are being asked to perform completely new, more sophisticated functions—data warehousing and mining, intra/extranets, customer relationship management and so on—the benefits of which are simply not quantifiable under the rigid ROI metric.”

Unisys recently surveyed 400 senior managers in 200 large organizations across Britain to see what mattered to them when it came to making IT investment decisions. Results showed that more than half those responsible for signing off on IT project budgets regard customer satisfaction, ease of use and system functionality as more important barometers of a project's ultimate success than ROI.

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In today's sophisticated IT environment, project managers who are evaluating team efforts must set clear operational goals, extend evaluation timelines beyond mere system delivery and emphasize more subtle evaluation criteria.

That finding is confirmed by the team at the Fluid Business project at West London's Brunel University that is working with Unisys and several large companies to develop business models that more effectively integrate people, processes and technology. Forward-looking organizations now bring “softer measurements” into play and extend project evaluation timelines well beyond system delivery, says Mark Lycett, one of the project's administrators.

“ROI is very much an organization-centric way of looking at project value,” Lycett says. “A company measures its effectiveness in relation to how the system has improved its own operations. Leading-edge thinking is beginning to extend evaluation out to the customer: How has the organization's new IT system improved the customer experience, in terms of value drivers, value expectations and customer-perceived benefits?”

Evaluation has to go way past the “go live” date, Bevan says, and it must focus on tangible business benefits, rather than simply on-time and to-budget delivery. “What's needed is a totally new approach to project design and measurement,” he says. “Before embarking on any IT project, we should ask, ‘What is this system actually going to bring in terms of quantifiable benefits to the way we operate?'”

Once the goals are clear, Bevan includes a separate step in the planning phase that considers how the system will mesh with existing business processes. “Looking at the way new hardware or software will interoperate with existing IT systems is a routine part of project management,” Bevan says. “But looking at how the new system will interoperate with the people-based processes that form the core of most companies’ operations is widely over-looked. This step is key; like redecorating a room, the willingness to put in an extra level of preparation can generate a huge pay-off in terms of project success.”

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If ROI has little left to tell us about a project's real value to the organization, it has another major flaw: By convincing us the system has saved us money, it hides the real cost of ownership and operation. Lycett notes that while large hardware and software purchases generally are amortized within five to seven years, organizations often keep legacy systems hanging around for 20 years or more. When you factor in maintenance, which may account for up to 80 percent of the total cost of IT system ownership, along with costly consultants that help link the old clunker to some sleek new IP box, ROI begins to look like a pretty poor approach to IT decision-making.

That said, is it time to definitively lay the wreath on the ROI grave? Not yet, argue Bevan and Lycett, who say return on investment still has a role to play as one of a set of tools used to understand value. “In many U.K. companies, ROI is now being joined by fuzzier metrics that reflect predetermined project goals,” Bevan says.

Articulating concrete objectives, then building them into the project implementation and evaluation phases is becoming the new IT gospel. Put simply, in today's mature environment it's time to jettison that comforting ROI teddy bear and face up to the more complex realities of project evaluation.

“In the end,” says Lycett, “projects are a delivery mechanism, not a value mechanism. Vendor hype aside, IT systems are not solutions, they're tools: a means to a tangible end that will add value to an organization. We've all been to the party to celebrate the end of the project. How many of us have been to the party celebrating the benefits of the system we delivered?” PM

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI.

PM NETWORK ❘ JUNE 2003 ❘ www.pmi.org

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