Corporate Executive Board

Why ROI Is Broken


Traditionally, the biggest knock against measuring ROI on IT–business projects has been the nebulous quality of the "R"—the return. However, since project benefits can accrue over multiple years and are either often intangible or not separable from changes to business process or market conditions, many sponsors and IT leaders have found ways to soldier on. Creative workarounds and interesting techniques that take into account the parameters of the "value of IT" debate have enabled them to get on with the projects at hand.

The real reason to actively distrust ROI projections is the other side of the equation: Most IT shops are punting when it comes to capturing the true cost of the investment. The reason is that almost half of the cost of new IT projects is labor and the only way to accurately measure labor costs is through time sheets. According to research by the Corporate Executive Board, fewer than 30% of the largest IT shops in the world have effective time-tracking capabilities.

For the remaining 70%, conventional wisdom indicates that "guesstimation" is okay—after all, labor costs are being measured in toto, so the overall portfolio cost appears right. However, this approach ignores the benefits of understanding project-level costs. Those costs inform portfolio prioritization, become the foundation for resource estimation and productivity improvements, underpin outsourcing initiatives, allow leadership to understand capacity peaks and valleys across the organization, and are the currency of the right conversation with individual business sponsors.

IT leaders looking to construct believable ROI metrics should not underestimate the value of time sheets and can follow these lessons to maximize their measurement potential:

• Make sure staff are convinced that the time sheets are not an attempt to micromanage activities. They must be motivated to hit utilization targets.
• Project managers should check in with their staff on a weekly basis to ensure that they are allocating their time to the appropriate project codes. In addition, codes must have caps on them to ensure projects are not being billed to in error.
• Loop in HR and compliance in advance in order to proactively manage staff overtime hours worked.

Provided by Corporate Executive Board —What the Best Companies Do™

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CEB specializes in helping companies drive corporate performance by identifying and building on best practices. The organization offers data analysis, research, and advisory services relevant to business leadership. CEB's client and member network includes 85 percent of the Fortune 500, 50 percent of the Dow Jones Asian Titans, 70 percent of the FTSE 100, and 80 percent of the DAX-30. CEB membership encompasses 50 countries, 5,300 individual organizations, and 225,000 business professionals.

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