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Everything Is Measurable

By Douglas Hubbard

May 23, 2007 — CIO — The "I.T. VALUE MEASURE PROBLEM" is ubiquitous in companies today. Business executives often hear a mantra from their IT departments that goes something like this: "We can’t measure the value of IT. It’s too intangible." If the line works, and IT leaders persuade business executives that IT investments are somehow fundamentally different from other types of business investment, IT is relieved of the responsibility of attaching dollar values to those investments.

Some high-profile CIOs have gotten extended mileage from this approach. Paul Strassmann (the CIO guru) often recounts the story of being put on the spot to justify the costs of IT at Xerox Corp., where he was corporate director of worldwide computing. Since that uncomfortable experience, he has argued that evaluating an IT investment in the same manner that most other departments evaluate their efforts is nearly impossible. After all, he points out, accounting departments are never required to justify their budgets. IT is just as basic to the business as accounting, right? So the IT budget likewise should be exempt from the messiness of justification.

As one might imagine, this position is popular among some IT executives because it gets them off the hook. There is only one problem. Many business executives just aren’t buying it. And they shouldn’t. Unlike the accounting department, the IT department typically has a large and rapidly growing budget . In addition, most IT departments have had at least a few high-profile failures, causing business executives to be somewhat suspicious of IT’s value.

Other IT executives believe that only pseudomeasurements are possible. A method misleadingly dubbed Information Economics (I defy anyone to find any real economics in this method) was developed by Marilyn Parker and Robert Benson. It is basically a subjective scoring procedure that computes a composite score based on a completely arbitrary formula. It is, in effect, a nonquantitative method masquerading as a quantitative one by using numbers and a simple formula.

The first problem is that results have no meaning when compared to other investments: What would you rather have, a retooling of a plant with a 62 percent ROI or an IT investment with a "score" of 95? The second problem is that, to date, there is no empirical evidence that this method improves decisions.

So how should CIOs deal with the problem of measuring IT value? They should start by considering the possibility that the value of IT actually is measurable. Of course, this flies in the face of much of the last two decades of IT dogma, but then it wouldn’t be the first time dogma proved wrong.

 

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