Most business people look for a return on their investments. In the case of stocks, businesses expect a dividend, a new shop is supposed to add to a company's bottom line and an additional sales executive is expected to increase revenue.
However, there appears to be a perception in some companies that it's not important to figure out a return on investment (ROI) for technology and IT products and services.
A recent IT Governance Institute survey of 250 non-IT executives in 22 countries found that 59 percent believe there's no need to measure the ROI on IT expenditure. It's fair to say that many Irish non-IT executives hold a similar belief - but this view could be damaging to the business on many levels.
Why IT needs to give back
Irish SMEs have to operate in an incredibly challenging economic environment these days. Many managers are demanding more from their existing IT investments and simply can't afford to spend money on inefficient projects.
"Given the current economic climate, enterprises should strengthen their governance of IT to ensure that their expenditures are delivering real value, reduce or curtail those that aren't, and pursue innovative uses of IT that can sustain and increase value," Robert Stroud, international vice president of the IT Governance Institute told Computing.co.uk when the above-mentioned report was published.
IT service providers themselves have acknowledged that their customers are more demanding about finding out why they should invest in a particular IT product or service.
"Any of the customers we are dealing with, especially in this economic environment, want to understand what they are going to get back in return," says Anne Fitzsimons, country manager, IBM Ireland's Integration Services. "It has to be very clearly measured. If you don't measure, you are not going to know if it worked and, if we do it again, [whether] to stop doing certain things or to do things differently."
Once you figure out the return on your IT investment, you can work out how to increase it and when to make - or postpone - future investments. IBM recently published a report on the IT challenges presented by the current economy, saying "The longer companies can derive value from their investments, the better. Finding new ways to use old equipment is well worth the effort - especially when the budget for new technology has shrunk."
Assessing the returns
It's a good idea for firms who are investing in a new IT project to work out a strategy for what they are trying to achieve and figure out how this integrates with the overall goal of the business.
"Align your IT strategy with your communications strategy and your business goals. Far too often you see an organisation that has one focus for the overall business and doesn't back that up with the communications or the IT to make it happen. There is a disconnect between the two paths and it tends to really injure them in achieving what they want," says Fiachra Ó Marcaigh, director of IT consultancy AMAS.
Certain IT projects lend themselves more to calculating ROI than others. For example, if an SME sets up an online sales channel, the manager of that channel can quickly work out if it's justifying the company's investment. "Look at the overall total of sales and look at the previous channel's sales and what the increase was on the previous one," says Ó Marcaigh, before adding it's important to make sure the online sales channel isn't cannibalising an old channel.
Similarly, lots of firms invest in an IT service provider. You can ask these providers to give you a detailed breakdown of the costs of their service. For example, if a company is hosting your servers, they might be able to explain how much it costs to power, maintain and secure each server per month. You can then compare these figures to how much it would cost you to host your own server.
There are numerous IT projects that can help staff members work more efficiently. These include upgraded computers, virtualisation, IT communications tools like Blackberrys and improved internet connections. It's easy enough to work out the return on these type of investments.
"If you can save X number of staff members Y number of minutes per day on routine tasks like looking up colleagues' contact details and so on, you can put a value on that very readily. You know as a company what you pay your staff so you can calculate the amount of time you are saving them," says Ó Marcaigh.
Barriers to assessment
It can be tricky assessing ROI for certain types of IT projects, however. Those projects that generally have to do with the reputation or image of the firm are often hard to evaluate. Examples include the cost of penning a company blog or converting a catalogue into something suitable for a website.
"Where there is no transaction going on it is harder to judge. The actual positive return on putting together a really good website is much more difficult [to assess] if you are not directly making sales through it," says Ó Marcaigh.
The key to evaluating these kinds of IT project is to think about how they impact on the business. Barry Meehan, owner of Clonmel-based World Wide Cycles, writes a popular cycling blog. He spoke recently at an Irish Internet Association event about how his blog had attracted customers to the shop from far beyond the company catchment area.
Ó Marcaigh advises businesses to bear this in mind before writing off certain IT projects. "A business-to-business client or professional services colleague might win a lot of the key business online. There are different ways in which people make contact with the company. Reputation and awareness are much more difficult to put a price on," he says.
Calculating the return on your investments is key to maximising any future IT decisions and to making the most of existing ones.
source: e-Business Live
Tech Check - A Technology 'Check-Up' for Small Businesses by Independent Experts
The core ‘product’ of the scheme is a business review of the use of ICT, leading to a brief written plan for optimising the strategic use of ICT to develop the business.
Independent experts working with the individual owner managers will deliver this activity. The experts are expected to be drawn, to a large extent but not exclusively, from the pool of business mentors that currently work with the County and City Enterprise Boards. The focus is intended to be primarily on technology as a means of developing and growing the business rather than on the use of technology for its own sake. The output will be much more than a simple “spec” for the hardware/software required.