Measuring ROI

Prior to the financial crisis my organization never paid attention to projects cost versus benefit, our IT steering comity used to approve project based on business requirements, if a new application was requested by any business unit, we as IT department used to execute, assign the resources from our side and start working on it, even if we have other projects in hand. All of this changed, any project now needs to be financially justified before being approved.

My organization considers many factors before approving or rejecting a project, we first identify the return type, and in other words will this project reduce cost or increase revenue. The difference between both is that if the project reduces cost, we measure the amount of work needed to fulfill the new project, in addition the mount of work eliminated by this project and its cost. If the project is revenue driven, we basically calculate the expected revenue from implementing the project less the cost for that project and prioritize the project based on ROI figures. In addition to that, as a bank we have regulatory issues we have to fulfill, so any regulation from the central bank that requires a project we do it regardless of the cost.

Based on the business request, we verify if this request requires a change or a complete project to fulfill it, after this approval, we calculate the feasibility of the project; we weigh the benefits against cost. The cost we calculate is based on new equipment’s or software licenses, man-days for internal staff or consultants, rental for network lines, and within our department we prioritize it based on the availability of our team and cost on our department. We then present the outcome with the business unit that requested the change, and they have to justify the spending and ROI.

From my IT department side, all the projects whether IT internal or business projects, should fit into three categories, business enablement program, risk reduction program and service enhancement program, the first should be justified financially by the requesting department, the others benefits are calculated either by risk reduced (we consider this as a benefit and revenue), or offering better services to internal or external customers. For the service enhancement program projects, we calculate TCO for each system we have, which includes maintenance, training, software, hardware and administration cost, and any service improvement project has to reduce the TCO. For example, we introduced a project to virtualize all our windows based servers, the improvement was in easing manageability and monitoring of the systems, as well cost reduction was in software licenses and hardware equipment used, in addition to administration cost reduction as we reduced number of outsourced engineers we had.

References:

Gincel, R 2004, 'Measuring Success Through Metrics', InfoWorld, 26, 45, p. 51, Computers & Applied Sciences Complete, [Online], Available from:

http://web.ebscohost.com.ezproxy.liv.ac.uk/ehost/detail?sid=359c5975-db4c-4fad-b3ec-43e9a3bf552d%40sessionmgr15&vid=1&hid=13&bdata=JnNpdGU9ZWhvc3QtbGl2ZSZzY29wZT1zaXRl#db=iih&AN=15055911

(Accessed 10 April 2011)

Joch, A. (2006). Reassessing it project metrics. Hospitals & Health Networks, 5(2), 18, [Online], Available from: http://search.proquest.com.ezproxy.liv.ac.uk/docview/215308746/fulltextPDF?accountid=12117

(Accessed 10 April 2011)

Zizakovic, L. (2004), ‘ROI for your Software Project Basing your Return on Investment Analysis on Sound Financial Principles’, [Online], Available from: http://www.insidus.com/CalculatingROI.pdf

(Accessed 10 April 2011)