How do you choose which IT project to spend your money on? The usual answer is the project that brings you the best return on investment (ROI).
But that is a big mistake, according to Terry White (pictured), research director of CXO, an IT advisory and consulting group.
“That is the mistake we all make. How do you get a return on investment from a desktop upgrade or a laptop upgrade? You don’t, you just have to do this stuff,” he told Computer Weekly.
White suggested CIOs stop thinking about ROI of IT projects, and start thinking about the utility of IT to the business.
Utility, he argued, can be measured, but unlike return on investment, it allows companies to assess the value of projects that are important but don’t necessarily improve the bottom line.
“We have stuff we have to do just because we have to do it. If you do Sarbanes-Oxley or Basel, you are not looking for a return on investment, you just have to do it,” he said.
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White pioneered techniques to measure utility after being approached by a steel company that had a list of 83 possible IT initiatives. It wanted help deciding which were really the most important.
He came up with a list of 20 “utilities” that IT projects can offer to the business. They include risk mitigation, speed to market, strategic fit, and paths of action – new business options that an IT project opens up. ROI is just one factor out of the 20.
The steel company was able to identify the five utilities that were most important to the business, and to rank each project against them in a systematic way.
The exercise produced a shortlist of projects that looked very different from the shortlist generated by analysing return on investment alone, said White.
As a result, the company decided to invest £100,000 in a project dubbed "factory 2020", to research techniques to automate factories with the latest IT equipment.
The project did not feature at all in the top 10 list of projects measured by ROI, but turned out to be vital to the company’s future.
“It helped it focus on the important things over the next year. It decided to do factory 2020 [immediately] because it was going to take four of five years to get going. That stuff gets under the radar,” he said.
The technique has allowed the company to prioritise which IT projects are worth developing businesses cases for.
“It moved the company away from thinking intangible benefits were unimportant and should be discounted,” said White.
“The chief financial officer loves it. It gives him something he can look at, study, manage. It allows [the IT department] to decide what projects to develop a business case for,” he said.