Management metrics

IT organisations measure the wrong things, says Forrester's Todd McGregor, who outlines five management metrics that can help CIOs.

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By  Todd McGregor Published  July 12, 2008

Most IT metrics efforts lack relevance to the business and are not well linked to business outcomes. They tend to be IT-centric and operationally focused on the underlying technologies, such as WAN availability or server downtime.

It's difficult for the business to understand how these measures relate to its objectives, and they provide little insight into the value that IT delivers. As a result, the business typically focuses on the one metric they do understand - the cost of IT and how to reduce it - and this leads to a continuous cycle of cost reductions. To break this cycle, CIOs must create a scorecard that is:

1. Understandable and relevant to business executives. Often IT and the business speak different languages. Metrics must be translated into something the business understands, such as availability of business applications or the cost to support a business area. IT-centric details should be kept within IT.

2. Connected to business outcomes. Business executives are concerned with introducing new products and services, improving customer satisfaction, increasing gross margins, and growing market share. IT metrics must be linked to these business outcomes, specifically demonstrating how IT initiatives contributed favourably to improving these outcomes.

Metric 1: Alignment of IT investments to business strategy. You can't deliver sustained business value if the IT strategy and the business strategy are not aligned and tightly linked. Alignment implies that business strategy and IT strategy are developed concurrently, not as an afterthought. The IT portfolio should be a reflection of the strategic business objectives or themes.

Metric 2: Cumulative business value of IT investment. The second metric explicitly measures and communicates the value of IT investments by looking at the cumulative return of the entire portfolio. This is generated by sorting all portfolio projects by their net present value in descending order.

Metric 3: IT spend ratio - new versus maintenance. Many IT organisations find themselves locked each year into a cycle of spending increasing amounts of the budget on just keeping the lights on - leaving less and less to spend on new initiatives. In fact, our research shows that the average IT organisation spends 70% to 80% of its budget on maintaining the status quo versus only 20% to 30% on new initiatives. Best practices companies have taken this ratio to 60/40, and some are actually driving toward 50/50. Measuring and reporting this ratio can be a key indicator of both the efficiency of IT amd IT value creation.

Metric 4: Critical business service availability. The fourth metric focuses on the customers of IT and their satisfaction with the services IT provides. The most useful metric would be one giving insight into current and future customer satisfaction - it would be a leading, not a lagging, indicator.

Metric 5: Operational health. The final metric focuses on operational health and stability, without which IT will be unable to establish user credibility and is more likely to be relegated to a role as a cost - rather than value - centre.

Effective programmes for measuring and communicating IT performance to stakeholders assume outward-looking perspectives. The best place to start is by interviewing key IT stakeholders to first understand their current IT perception and then what they expect or need from IT to be successful.

Todd McGregor is managing director of Forrester Middle East

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