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