Tuesday, February 3, 2009

Measuring the return on your IT investment

Written by Staff Writer

During these tough economic times most IT departments are looking for ways to save. Today, investment in technology requires a good reason and a measurable return on investment. IT departments are not going out and spending on a whim. A clear need is required otherwise IT spending is placed on hold which has been the case for the past few months.

IT spending will come back, but with clearly defined needs as its foundation. Business owners are looking to get the most out of their technology investments, particularly when money is tight. The problem for many IT departments is that they don't always know what kind of return they are — or should be — getting on their investments.

Over the past few years initiatives from consolidation, dense computing and virtualization have been given the go ahead by most companies. These initiatives represent the first wave of IT adoption. While there are still companies that are in the midst of these types of initiatives most have moved on. The problem that many now face is what to move on to next to help provide a big bang for the buck.

What remains is the collection of smaller initiatives that are harder to quantify returns for. The focus has now become agility, speed and automation. The problem with many of these types of initiatives is that they are soft benefits rather than in most cases benefits that impact the bottom line.

Unfortunately, over the past months we have been hearing of another cost saving initiative that has a negative impact and that has been the laying off of employees. According to an informal study conducted by the Data Center Journal, approximately 30% of the readers have stated that the elimination of employment positions have occurred in the past few months at their IT department. Some of these positions have been replaced by the use of technology such as automation while in other situations the workload has been doubled up on existing personnel.

We highly recommend against the option of removal of staff unless absolutely necessary. This action has negative implications and reduces employee morale. Whenever possible re-assign staff because the alternative may provide an immediate ROI, but the long term impact can cause long term problems from morale, production and retention.

Let us now focus on what is measurable. There are three areas of IT that every IT manager should carefully review when deciding on cost saving initiatives and their return on investment. The first is infrastructure which includes facility, network and security to name a few. These items are requirements for the business and are therefore harder to measure return on investment.

Focusing in on cost savings on the actual cost of products and services is certainly one way to improve your infrastructure investment, but in the end it is labeled as the price for doing business.

The second area is production. Production includes everything that helps keep your team productive and your product output flowing such as software and PC’s. To measure return on investment in this area you can determine how productive an individual or process was before and after the technology change.

Finally, the area that will generally have the biggest return or loss is the strategic area. The strategic area includes anything that will provide greater sales, re-engineering the business or a new product or process. These items are big decisions and should always be carefully examined.

The preceding is just a short summary that over simplifies IT ROI, however the realty is that most organizations realize that IT has value and most investments are strategic in nature while others are done to stay competitive. Most of these types of projects can sometimes takes several months or years to see the true return.

Whenever possible keep track of changes and costs including personnel attitudes to help measure how your company performed before and after. Remember, short sightedness can impact your long term goals if not properly thought out.


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