3.Make sure you have ROI benefits that are auditable.

If you are going to plug a benefit into your ROI analysis that says you can reduce head count by 20, make sure you can audit the benefit for results. That means understanding how long it takes people to do their jobs now - before you begin the project. It also means building a 20-person head count reduction into the operating budget of the business unit and making the successful cuts a part of the bonus rewards for managers and employees in the unit.

4."Soft" benefits matter, but discount them heavily.

Finding a CFO who is willing write down soft benefits - improved customer satisfaction, increased worker productivity and improved market competitiveness, for example - and use them in an ROI calculation is harder than getting John Howard to say sorry. Soft benefits are just too hard to account for in financial terms; but that doesn't mean they aren't there.

"It's foolish to ignore [soft benefits]," cautions Ian Campbell, president and CEO of research for Nucleus Research. "If everyone discounted productivity gains, we wouldn't have PCs on our desks. They don't have positive ROI without the productivity gains. And they are too costly to manage relative to the hard savings they provide."

Here's a reasonable compromise: Include soft benefits in your ROI analyses, but separate them from the hard benefits you expect the project to achieve. In addition to that, let caution rule the day and discount the soft benefits by at least 50 percent.

5.Factor in the productivity discount.

If you save a manager all kinds of time with new software but he uses that extra time to cruise the Web, what have you gained? Not much. Employee productivity ROI depends on how structured the employee's time is. For example, if an assembly-line worker saves 10 minutes with new software, you can increase the target output of the assembly line to reflect the time savings - a hard benefit that goes right to the bottom line. Similarly, if new software reduces the time salespeople will spend doing paperwork, you can increase their sales quotas to reflect the time saved.

But if your productivity ROI depends on white-collar types, watch out, says Campbell of Nucleus Research. Nucleus discounts their productivity savings from software by up to 80 percent. For factory workers and salespeople, the discount may only be 10 percent or 20 percent.

6.Separate software proposals into those that have the potential for ROI and those that are simply the cost of doing business.

Some IT projects are like fixing holes in the factory roof - you have to do them regardless of payback. But all too often, CEOs and CFOs won't approve any IT projects that can't show positive ROI. That pushes IT to trump up the numbers on borderline projects or, worse, avoid proposing low-ROI-but-necessary IT investments such as upgrading the corporate network.

7.Make sure the ROI benefits are staggered.

One last rule of thumb: If all your proposed ROI benefits don't hit until the third year of the project, it's probably not worth doing. Too much can happen in three years. If you don't have some benefits kicking in sooner, the ROI could turn to mud. Staggering the benefits also gives you some convenient check-in points to evaluate progress of the project. Even if the benefit is a little lightweight, have something happen in 90 days. It doesn't even need to be hard dollar returns. If it's only that you want a certain number of people using the system - however incomplete it may be - within 90 days, that's OK.

If you can't get anyone using it, that becomes a quantifiable milestone that may cause you to reconsider what you're doing.

Source: Darwin Magazine