Define short- and long-term targets and provide the right evidence
to gauge the value of IT
Pinpointing to a business the value of their IT can be notoriously
difficult - but it can be done with the right set of performance
measurements.
If IT managers do not have rigorous metrics in place to evaluate
their strategies and spending, they should not be surprised if much
of the IT budget disappears into a black hole.
Economists have been largely unable to detect improvements in gross
domestic product or productivity as a result of massive industry
spending on technology. Chief executives have also been frustrated
by the sight of an IT budget sinking into systems with little
apparent return.
IT directors should be leading the way in ensuring that IT adds
value to the business and in making that value clear, but all too
often they do not.
The key to adding real value, and to being seen to add value, is
measurement. If an IT director is going to put measures in place,
they should make visible to the rest of the company the
achievements of the IT function.
A starting point is establishing four key categories to measure
value: short-term targets; long-term targets; defining what will
support present targets; and defining what will support long-term
targets.
These categories show the importance of balancing short- and
long-term targets; for example, they stop managers from taking the
easy course for spending now and leaving a mess for the future, and
they also support the need for long-term investment in
infrastructure.
Short-term targets for IT could include customer satisfaction and
business efficiency. Customer satisfaction is the impact of IT
spending on end-users and the result this will have on an
organisation's profits. This also might include the amount of
business from external customers.
Business efficiencies would relate to any cost savings from IT when
applied to regular business processes, such as payroll and
administration.
Long-term targets should be coupled with an organisation's
strategy, such as how IT expenditure helps achieve an
organisation's strategic goals, including growth and risk
management; and IT's contribution to reducing the risks faced by
the firm, such as changes in customer behaviour or fraud.
These four categories will give an indication to IT directors and
the rest of the company that the IT budget is working for the
business.
Evidence might also be included about how much value is contributed
by "back-room" processes, such as data integrity checking or system
upgrades.
An IT director might grade the value of IT by measuring the
contribution any information from the IT department can make to the
business; the short and long-term value of hardware and software;
the effectiveness of IT staff and their skills; and the value of
relationships with suppliers.
A rough and ready idea of the sophistication of your metrics can be
gauged by the number of items you can measure by quantitative
evidence - not just by gut instinct. A firm measurement of the
value of IT is the necessary first step to adding business value,
along with the evidence to prove it.
Bob Phelps is a senior lecturer in strategic
decision science at the Cranfield School of Management, and author
of Smart Business Metrics, a guide to formulating measurement
criteria for business, published by Pearson Education