The value of technology

Businesses need to evaluate their IT before they speculate to accumulate.

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By  Todd McGregor Published  June 1, 2007

There's an old management axiom: You can't manage what you don't measure. Yet many organisations do a very poor job (or no job at all) of measuring the business value of their IT investments; but maximising the business value of IT investments is the primary objective of good IT governance. A number of formal measurement methodologies exist for measuring the business value of IT. Simple ROI or other financial metrics are not good enough. By employing a consistent, repeatable, credible methodology that both the business users and IT are held accountable for and that measures projected business value as well as the actual value delivered, organisations can significantly improve their IT investment returns.

It is important that, regardless of the methodology chosen, it is practiced across the enterprise. Therefore, Forrester recommends that:

The chosen methodology is consistent. An enterprise typically makes other capital investments in addition to IT. Any value methodology chosen for IT investments should be consistent with any existing methodologies used within the enterprise. For example, if hurdle rates are used in other parts of the organisation, then hurdle rates should be included in the complete IT value methodology.

The chosen methodology is credible.
Those outside of the valuing process itself must view value methodology as credible. The methodologies documented earlier have been developed and applied by reputable organisations in a transparent way, thereby ensuring their credibility. There are other methodologies available, and organisations can always develop their own. However, they must be subjected to some form of objective evaluation. The finance or auditing department could perform this.

Joint business and IT accountability is required. There are no IT projects, only IT enabled business change. The benefits of IT investments are typically enjoyed by some entity outside of IT and this entity must be held accountable for the results of the investment. It is even more effective if individual rewards are tied to performance changes from the investment.

The PMO should contain a value methodology center of excellence (COE). The business case is the centerpiece of most value methodologies. The PMO should be in a position to provide guidelines; templates, tools, and consulting to help sponsoring execs prepare investment proposals.

IT investments should be constantly revisited. Once an IT investment proposal is reviewed, approved, funded, and sequenced within the portfolio, the work is still not done. As investment programs and projects are executed, they must be periodically reviewed to ensure that they are on track to return their projected benefits. At each review a decision must be made to continue, accelerate, reduce, or eliminate the funding for the investment.

Value methodology encompasses the entire life cycle. Business cases are nothing but estimates of expected business value based on a set of assumptions. Conducting post-implementation audits, tracking actual benefits realisation over the life cycle of the investment, and feeding this learning back to the organisation can significantly improve the accuracy of these estimates.

When an organisation implements a value methodology for evaluating IT investments, it enables decisions to be made based on facts. These facts include the degree of strategic alignment, the expected tangible and intangible business value to be realised, as well as the level of risk incurred.

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