Eight Signs You May Be Wrong-Headed About ROI

Loraine Lawson

Neil Ward-Dutton, research director at the UK-based Macehiter Ward-Dutton Advisors, recently called ROI a "minority sport" on Twitter.

 

But Ward-Dutton recognized a bigger problem: IT doesn't like to perform ROI on any projects.

 

"Spot on," I thought. "But why?"

 

So in a recent interview, I asked him. He explained: People pay lip service and handle calculations as a CYA tool. It's something people tend do before an investment is made, but they don't follow through to see how ROI actually played out.

 

Which lead to my next question: We talk about ROI all the time in the trade press, but if no one's really doing it, what's the point? Could it be that ROI doesn't really matter?


 

"ROI is easy to type-it's just three little letters. That's why it's so easy to reference ROI and bandy the term about," he responded. "The fact that ROI is still a minority sport doesn't make it less important though-if anything we should all be writing about it and exhorting people to take it seriously more than ever. ... in the current financial environment, serious focus on ROI is really important."

 

I thought of Ward-Dutton's remarks when I read "Who the Heck Needs ROI?" today on Technology Evaluation Center (free registration required).

 

The article isn't specifically about ROI for SOA or integration projects. However, it is an excellent and thorough exploration of ROI, and the advice definitely applies to SOA, integration or any IT project. It tackles the scores of ways ROI is ignored, blotched or otherwise mishandled by executives, managers, vendors and business analysts.

 

If you think that's not something your IT division would ever do, you might want to think again. In fact, when it comes to ROI, many, many people are just plain wrong about what it does, how it works and when you should use it. This article is a must-read if your IT division displays any of the following ROI wrong-headedness:

  1. ROI is too complicated.
  2. The reasons for our project are so obvious, so there's no need to calculate ROI.
  3. ROI is "just a part of the business case."
  4. We'll just ask the vendors to tell us the ROI.
  5. OK, we'll perform the ROI-but then we can forget about it and just get the job done.
  6. ROI is calculated one way-as project's payback period.
  7. ROI is "justification" for a project we're already planning.
  8. ROI and Total Cost of Ownership (TCO) are separate issues.

 

Don't be ashamed if any or all of the above apply to your IT division. There's a reason the article calls them common ROI pitfalls.

 

It's certainly true that ROI isn't quick or easy. In fact, it looks like a darn headache, and sometimes, it will bite you in the backside. But here's the catch: Pretending ROI doesn't exist will not alter the existence of ROI. When it comes to numbers and gravity, denial just won't work.

 

I should know: I tried it repeatedly with Algebra, Trig, pre-calculus and, on occasion, the family budget.

 

Ignoring the ROI just means you won't know how bad it is until the money's already spent. And in this economy, that kind of denail could lead straight to the unemployment line.



Add Comment      Leave a comment on this blog post
Jun 14, 2009 2:34 AM Dave Dave  says:

One cannot afford to ignore ROI, especially during a down turn. It makes sense to invest in tools that will help you keep a tab on your ROI, while you plan your expenses and other fixed and variable costs.

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