Hoist by our own ROI petard

ITmanagers who use suppliers' calculations of return on investment to justify the investment in IT in their organisations now, in...

ITmanagers who use suppliers' calculations of return on investment to justify the investment in IT in their organisations now, in their turn, face being engulfed by ROIBS

Let's face it; at best, you probably view suppliers' return-on-investment (ROI) calculations with a pinch of salt. While you may use the figures presented to support capital expenditure, I suspect you would be reluctant to gamble your house on the actual return were it to be assessed post-investment. But that's OK, because until now, most organisations have not bothered with such post-mortems.

But the recent downturn in economies, and the associated fear that is permeating boardrooms across the globe, has led to questions being raised and evidence sought to prove that IT investments do yield a return.

Our industry is being hoist by its own petard. For having used ROI to accentuate the importance of IT in the modern organisation, we have sadly gone overboard in quoting figures and projections that are, at best, questionable and, all too frequently, plain bullshit. Have you had an attack of the "ROIBS"?

At times, ROI can be realistically and usefully calculated. In the 1980s, a technology was assumed to be a surefire bet provided it could be cost-justified within a couple of years or so. Where the capital cost was sufficiently significant, a five-year payback was not unreasonable in justifying expenditure.

A modem that delivered twice the throughput would effectively be capable of reducing call connection costs by 50%. It was largely irrelevant that, only two years later, reinvestment was inevitable as a consequence of Moore's law.

The early days for most technologies all have a similar script. Faster mainframes allowed more data to be processed. Networks, although atrociously unreliable in the early days, allowed sharing of central resources. Laser printers appeared to offer massive efficiency improvements and the cost of consumables has, and continues to be, overlooked.

Against this background, to my astonishment, I recall last year reading a document issued by a network management company claiming independent validation of an ROI within three to four months based on a capital expenditure of $250,000 (£159,000). Was it really trying to suggest that, by not giving it a cool quarter of a million dollars, an organisation capable of making such an investment would be literally throwing away $750,000 in that same year?

I didn't need to examine the figures to conclude the calculation to be subjective rubbish. But I did, it was, and would certainly be considered so by any self-respecting financial officer. Further, I couldn't understand why the supporting analyst would sign up to such rubbish.

I recall being subject to pressure from my own sales force to conjure ROI figures for network management that would make investment compulsory. Although it was difficult, I made a case, but cannot claim to believe in it 100% - no more than I believe in any other figures that are bandied about these days.

In the glory days of IT, inventors and early adopters relied upon instinct when determining what would be a good investment. Admittedly, Moore's Law could be linked to tangible efficiency improvements. Arguably, in today's broadband world where systems' capacity is swallowed by fancier, rather than faster, applications, it has become less obvious where the payback comes from.

Does a flat screen for your PC make you any more efficient than a traditional monitor? Of course not. Manufacturers might argue that it frees up desk space, which might be construed to provide some form of spurious payback. But I fear that increased desk space simply means more rubbish being piled up in front of you, thereby inducing the reverse effect.

As technologists, I passionately believe that we need to bring the pendulum back a bit. Of course, we shouldn't be given carte blanche to invest purely for the sake of technology. But I suggest that a certain degree of "gut feel" - as when buying a house - should be considered an important part of the buying criteria, as it is this that fuelled the IT revolution in the first place.

Those who search exclusively for ROI, if allowed to continue, will sanitise our industry and remove the entrepreneurial, technical and commercial spirit that differentiates our sector from the office and stationery supply business, and which has really made a difference to the bottom line.

John Earley is managing director of Xellirate
This was last published in October 2002

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