There were two highly visible blog posts during the week of September 28 on the cost of IT failures to the geo-economy. But just as all politics is local, even in geopolitics (see President Obama's whirlwind trip in and out of the Copenhagen International Olympic Committee meeting October 1/2), all the costs of IT failures are local. They hit your IT budget and your enterprise's bottom line first. Then each of your individual "IT failures" add up to a worldwide total.
"IT failures" is in quotes because before one can even begin to add up the cost of IT failures, failure must be defined. As illustrated in the comments section of the Michael Krigsman ZDNet post on September 29, "Annual cost of IT failure: $6.2 trillion," there is really no good definition. Krigsman is bringing up the subject in reaction to a post by Roger Sessions on his blog, in which Roger posits a calculation of the geo-economic cost of IT failures. I like Roger's approach primarily because his formula was coincidentally similar to one I posited trying to answer a similar question on my IT Investment Research blog on September 29, "Spend More on IT To Save a Trillion Dollars on Open Source".
Roger definitely asks the right questions, but I think part of his methodology may be flawed. The major issues I have with his methodology also apply to how you analyze your individual results within your IT department and enterprise. The issues are:
Roger chose the aggregate gross domestic product (GDP) of all the countries in the world as reported on by the IMF or World Bank or someone as the proxy for the aggregate expected ROI/missed opportunity cost of the world's IT projects in process. I think he did it that way because he was only counting purchased IT goods and services as a cost as indicated in the first bullet above (or did it happen vice versa?).
But that's not the way you do the ROI on an IT project. You don't expect to save money out of your ongoing IT-sysadmin outsourcing expense when you are implementing a new purchasing application. You don't expect to reduce your firm's electricity bill by adding a new e-commerce feature to your Web site. Furthermore, many IT projects such as payroll processing are simply a cost of doing business, or involve meeting a government regulation such as Basel II or SOX, and so forth. There is no ROI at all expected of either (unless you want to calculate the fines you'll get from the various states for not paying your employees on time or from the SEC for not filing shareholder data in a timely manner).
So how do you calculate ROI on proposed or in-process IT projects? I don't pretend to have the answer yet but I'm uncomfortable with the trillion-dollar estimates floating around the blogosphere. Years of studying market dynamics tell me the market is not that inefficient; you cannot all be spending so much money (about 5 percent of enterprise revenue as explained on my personal blog) on something that isn't working out for you.
So help us help you calculate the cost of IT project failure and we can help you avoid such failures altogether. Send in your ideas on calculating ROI.