CIO Task Force: Not all IT Projects will Result in a Quantified ROI

Organizations must create a formal mechanism to measure a project’s ROI over a period of time–not just the first few months.

For years, we have treated business and IT as two disparate things. For years, CIOs have worked tirelessly to build an IT strategy that directly aligns to the business. But the truth is that business-IT alignment is now a thing of the past. The role of the CIO has become more important than ever. Today, IT has reached an inflection point that is its job is not just to support the business, but to continually transform it.

 However, a good question to ask is whether the role of IT has changed so much that it could now facilitate business outcomes? I think not. Let me explain with an example. About 15 years ago when we were in the process of implementing an ERP solution, a lot of our time was spent in evaluating its benefits and ROI.

 During the presentation with the leadership team, one of the key benefits listed by us for investing in ERP was productivity enhancement. At the time, the discussion got a little intense and I still remember what one of our leadership team members had to say. “For me, ERP is like building a highway–say a road from one city to another–that will stimulate progress of two cities and their residents. Therefore, we should not waste our time discussing whether an ERP solution is going to reduce a headcount of 45 employees or 450, but whether this will help stimulate growth,” he had said.  

 The role of IT has always been to fuel growth. Perhaps, what really has changed today is the use of fashionable terms such as business case, outcome-based IT (OBI) or even ROI, at the time of project planning. However, one may perform fantastic ROI computations or prepare outcome sign-offs while creating a business case. But all that is generally forgotten after a project goes live. Very few organizations carry out real follow-ups on real benefits after project delivery.

 I think that needs to change. For CIOs to demonstrate financial acumen, benefit realization should be made critical after a project goes live. Organizations must create a formal mechanism to measure a project’s ROI over a period of time–not just the first few months.

 While devising an ROI framework and measuring it is a good practice, there might be a situation wherein those projects will get sanctioned that have tangible or hard ROI, for example, projects for operations or sales.

 One way organizations can avoid this is by centralizing their IT budgets. Instead of allocating individual IT budgets to different departments such as sales, R&D, or finance, companies can empower their CIOs to take up the responsibility of prioritizing an IT project for a particular department–regardless of whether it’s a strategic investment or a tactical one. To give you an example, during the global meltdown of 2008, we took up one of the largest IT projects, the revamping of Hero MotoCorp’s dealer management system–which cost almost five to 10 times an ERP project–where we believed that its execution was crucial in order for us to run our business. 

 Therefore, I believe that realizing financial outcomes is just one aspect of executing a project and they should not be the only means to decide whether a project should be implemented or not. CIOs could also take up strategic projects that could prove as building blocks for other IT projects. Therefore, CIOs and other members of the C-suite must take a holistic view and realize that not all IT projects will result in a quantified ROI.

 That said, business outcome based-IT is only making the CIO’s role more important and hence, ensuring that business-IT alignment is dead.