Investing
How to Approach ROI Measurement Within IT Projects
Global Banking & Finance Review®
Company
By Daria Polończyk, Head of Analysis & Design at Future Processing
Return on investment, more commonly known as ROI, is one of the most valuable profitability indicators, used for measuring the amount of profit generated by an investment relative to its cost. ROI is simply defined as a metric used to evaluate an investment’s profitability or efficiency. Concerning IT projects, ROI aids organisations in determining if a specific investment may produce a quantifiable profit over a given period. It assists technology leaders in making informed decisions before implementing an IT solution. For organisations launching new IT projects, understanding how best to measure ROI for their technology investment is vital in obtaining a broader view of their investment’s financial performance.
The Power of Measurement
ROI is an important factor to measure in order to ensure that an organisation continues to make healthy investment decisions, provide up-to-date information to investors and map-out future IT projects. Moreover, according to a recent Future Processing survey, 52% of respondents stated that ROI was an important metric in their decision-making process. However, with complex benchmarks and an evident skills gap within the IT field, quantifying ROI is often challenging.
Measuring ROI offers remarkable leverage and benefits in establishing the IT department’s case to justify technological advancement. According to a CIO report, 81% of IT leaders agree that their IT leaders are under extreme pressure to defend their technology investments and prove ROI. However, for some IT projects, it is nearly impossible to calculate the benefit in numbers – still, the return can be substantial in the form of competitive advantage, product differentiation, and most importantly customer experience. To determine an ROI for future IT projects, organisations need to evaluate their project based on costs, savings, strategic benefits, and risks.
Understanding Business Impact of Technology Initiatives
To establish and present a comprehensive ROI strategy that will win the support of the c-suite, IT departments need to identify and communicate the business impact of their technology initiatives. In today’s digital market, CIOs are responsible for creating an IT culture that incorporates the whole business, to ensure that all spending drives future success. In addition, IT leaders predictably find ROI easier to establish when a project drives revenue but adds that IT departments should aim to tie all projects to the business needs if they want to calculate and convey accurate measurements.
Once the initial ROI has been established by the CIO, it is vital to enlist a wider network of business partners when determining the ROI of a project. It’s clear that an organisation’s IT department needs to collaborate with the company’s executive board to anticipate ROIs. Cultivating partnerships beyond the usual heads of departments might offer a wider range of insight into the business operations and consequently, surface lesser obvious benefits of the IT initiative, thereby reinforcing their ROI projections. It is also advantageous to test your projections. Proof of your concepts can validate a project’s ROI potential just as well as it demonstrates its technical ability.
An ROI Checklist for the Future
Projected ROIs should be as accurate as possible. Accuracy builds trust and establishes the IT department as a reliable entity within the wider business. CIOs should neither lower their expectations thinking that they will supersede projections nor overpromise to gain upfront support. Organisations need to take a long-term, individual approach, with frequent checks and a comprehensive overall view of business areas if they want to successfully measure ROI within the technical investment scope. There are several ways they can do this, but collaborating with a reliable IT partner is a fundamental element in the process of planning and implementing effective ROI measurements.
ROI, or Return on Investment, is a financial metric used to evaluate the profitability of an investment relative to its cost. It helps organizations assess the efficiency of their investments.
IT projects refer to initiatives that involve the development, implementation, or maintenance of information technology systems and solutions within an organization.
A CIO, or Chief Information Officer, is an executive responsible for managing and implementing information technology strategies in an organization.
Strategic benefits are advantages gained from investments or initiatives that align with an organization's long-term goals and objectives, often enhancing competitive positioning.
A business impact analysis is a process that helps organizations identify the potential effects of disruptions on their operations and prioritize recovery strategies.
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