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Flexible Figures

Flexible Figures

CIOs working through the current IT spending slump find themselves in a precarious position. CEOs, CFOs and shareholders have become hard-liners when it comes to technology ROI. Now they want proof that every IT investment pays back in some tangible way - no excuses, But just how rubbery are some of these ROI numbers?

The theory sounded great: Deloitte would implement a system enabling 2500 staff to complete their expense claims electronically with the help of a nightly feed from the company credit card provider. That would lead to a pretty compelling return on investment - on paper at least - with the project estimated to give each individual an additional hour per month, equating to a lucrative 30,000 extra billable hours, company-wide, per year.

The reality turned out, of course, to be very different and shows just how rubbery ROI estimates can be: in an industry where everyone works extremely long hours the system is, in fact, probably just allowing Deloitte's people to work one hour less per week."Since that doesn't mean they earn more income, the ROI is the quality of life, which is a bit nebulous," says the consultancy's Australian and Asia Pacific practices CIO Tim Fleming.

That this project had no real impact on the bottom line does not overly concern Deloitte since the real aims included enhanced employee satisfaction, minimisation of employee burnout and greater retention rates. But that makes Deloitte the exception to the rule. In many organisations these days an ROI built on such intangibles would be enough to kill the project dead. With the boardroom maintaining an almost obsessive focus on curbing spending it seems Australian companies are becoming more determined than ever to achieve maximum bang for their IT buck (see our story"Lean and Hungry Times".

"Our organisation is looking for very short paybacks, much shorter than previously for IT expenditure," the IS director of a chemical company who did not wish to be named told CIO."Three months to six months would be our limit. Any project that can't be quantified - if there are lots of intangibles - then that type of project just does not get up."

No Risk, Please, We're Cautious

These are unpredictable times. In such an economic climate the urge to take risks becomes almost non-existent and the need to cut costs is elevated to an imperative. IDC research analyst Andrew Milroy says companies are increasingly demanding proof of the value they are going to get out of their IT investments.

Everyone is aware that the current mantra is:"Show me ROI." Corporations are demanding 60- to 90-day ROI on many projects, and they won't sign off on technology propositions deemed anything other than low risk and likely to deliver a rapid high return on the money invested. UK-based Bloor Research calls these"Fast ROI investments" - ones that pay back the outlay within a year and from then, continue to deliver benefits.

The impact has been broad and far-reaching. Our chemical company director says there is only one approach to gaining project approval at his firm these days: unless you can show that the project will save money from day one and that the dollars saved will go straight to the bottom line, then it does not proceed. No argument. Saying that a project will improve efficiency and eventually move the company forward just will not wash. That attitude might work for IT projects where payback can be measured in dollars, but is precious little help when it comes to winning support for the many utilitarian but necessary efforts, like infrastructure upgrades and installing and supporting collaborative applications, where it cannot. Such projects are languishing in many organisations today.

And theory and reality about proving ROI do not seem to match much either. At US Computerworld's Premier 100 IT Leaders Conference earlier this year more than 150 IT executives were asked whether they measured the ROI of key projects six months after completion. Some 68 per cent confessed they did so"rarely or never", while 65 per cent claimed to lack the"knowledge or tools needed" even to calculate the ROI.

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