By Reed Kingston
In his recent blog post, Mark Tonnesen explained why he didn’t rely on traditional business case analyses, such as value case and return on investment (ROI) evaluations, to justify IT investments. I agree with Mark that these methods too often fail to support the right projects, and can fail to expose the wrong ones. I’ll put my MIT quant hat on here for a minute: if you are using tools that are prone to both false positives and false negatives, you should be looking for a new tool, or at least use the ones you have differently.
The problem is not that the financial analysis of an IT investment isn’t important—in fact, it is imperative, as it is for all investments. A good financial analysis casts light on some of the assumptions and trade-offs that are implicit in a large investment decision.
Problems arise when an investment comes off as lower profile, as happens often when reviewing IT investments. Decision making will always be biased against standalone technology investments as these are often poorly understood. How will “we’ll reduce network congestion and improve security by x%” fare in budget meetings against the sales and marketing team (“we’ll open up more markets!”), engineering (“we’ll design more products customers love!”) or operations (“we’ll lower costs with a new production process!”). That could be a pretty tough sell.
Getting to Good Decisions
Trying to justify IT investments without a business case driven by an internal customer organization can be an uphill battle. So how can CIOs and CTOs drive support for sound IT investments? Make sure important IT investments are tied to business cases that support increased revenue, reduced costs, increased customer loyalty and lower churn. Then provide financial analyses demonstrating how the proposed IT investment supports those business cases. This step defines the strategic value of the planned IT investment, making it a much easier decision for everyone to get behind.