I hear the term ROI often enough but rarely see it calculated. It is said that business is all about numbers– financial statements, stock prices, bonus plans–but then there are IT projects, with budgets that are clear enough (or at least large enough) but monetary returns that often get taken for granted.
With this anomaly in mind, I picked up Show Me the Money by Jack J. Phillips and Patricia Pulliam Phillips. Although dry and weak on examples, Show Me the Money provides a practical framework for calculating ROI. The book breaks the calculations into several levels:
• Monetary value of impact
The first three levels of metrics do not measure ROI itself, rather a project’s ability to deliver ROI. Without organizational buy-in, without the learning of new skills, without the actual application of new processes, a project cannot deliver value. And so it is essential to set objectives for these metrics, measure them at appropriate times during the project, adjust to the feedback, and evaluate them at some point after project completion.
These objectives for buy-in, learning, and application should be framed to deliver the desired impact, which itself must be measured. In measuring impact, you must decide upon the appropriate units and methods of data collection. The units may be just about anything relevant to financial results: sales revenue, cost, productivity, errors, employee turnover. By giving multiple approaches to data collection, the authors challenge a common assumption and insist that anything can be measured.
Finally, apply monetary values to the units, subtract project costs, and calculate ROI. For details on monetary values, please see the book. But let me point out an obvious suggestion that often goes overlooked by IT decision makers: partner with the accounting department. Those folks may either know the values or have a good sense about how to obtain them.
Is your organization serious about calculating ROI? What are the challenges? What are the benefits?