How do we measure the overall business value delivered by IT....?
Sunday, December 20, 2009
So back to the world of enterprise IT and how it delivers higher business value to the enterprises……
If we define businee value in terms of reduced cost , reduced risk, increased revenue, reduced cycle time, increased customer satisfaction, increased employee satisfaction and increased brand value….
Does a holistic measurement of this exist?
Has anyone out there figured out exactly how to measure the overall impact of the annual IT spend on the value delivered to business (in terms of these parameters) ?
I am looking for a method, a framework, a score card, a tool…
Please drop a note..or a comment…to share your thoughts.
posted by Anirudh Joshi @ 1:00 AM,
7 Comments:
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At December 20, 2009 at 10:11 AM,
said...
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It's difficult to figure out the requirement tree. Best may be to calculate usage with respect to time and custom add-ons should be explained well in advance.
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At December 20, 2009 at 4:00 PM,
Sachin A. Nimonkar said...
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Hey Anirudh....
You may get your answers in Val IT Framework 2.0 @ http://isaca.org/Template.cfm?Section=Val_IT3&Template=/TaggedPage/TaggedPageDisplay.cfm&TPLID=80&ContentID=51867
Cheers
Sachin -
At December 22, 2009 at 12:14 AM,
Anirudh Joshi said...
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A comment I received on email....
Its easy to measure the business impact of an ecommerce solution (as it directly results in increased traffic, conversions, orders etc), a Supply chain solution and infrastructure re-structuring … but for other IT applications such as a finance solution or a backend solution its may not be so easy or maybe even difficult to directly measure business impact… maybe in such scenarios
- effort saved in doing an activity could be translated to assess the business impact for the customer
- lesser people needed to take care of the system could be another extended measure
- a couple of other measures could be
o reduced downtime of the system
o future proofing of the solution resulting in capability to support and work without any additional cost in newer environments -
At December 22, 2009 at 12:30 AM,
Anirudh Joshi said...
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A great analysis sent on email by my friend VDM..an IT veteran..
Great question.
Let's start with the theory first.
There are 2 theories in question here.
1.The economic value of information.
2.The theories of decision making
Theorists such as David Lawrence and several researchers and professors
at MIT including George Apostolakis have tried to approach this problem in different ways.
Several have been used to quantify the gains arising from a given business decision.
Although the problem of finding the value of information is rooted in the
above theories, there isn't a single method or tool to solve the problem.
and beyond a certain point , marginal investments in information do not yield
equal value.
Fortunately it turns out that each business domain that the IT function serves has evolved its own set of metrics used to measure their business performance.
The good news is most decisions that the CIO has to take can be correlated with these metrics , at least in theory.
In fact improvement of these metrics often is the CIO's
marketing pitch to the business and the vendor's pitch to the CIO.
The difficulty lies in establishing a baseline.
In most projects that I have managed , it was
very difficult to assess as to where we stood before we started the implementation.
This is where I think IT must focus- clear characterization of the initial state , the
interim states and the final state and their value propositions.
The question then is at each state transition, how do we measure the value of the information .
For example, if the decision is made to consolidate the general ledgers of 2 merging companies, how do we assess the value of the consolidated information that it would generate ? Such an integration project could easily run into
a couple of million dollars and unless there is a clear gain it would not be worth the effort
esepcially if that state is only an interim one. EMV modelling or real options do help here
to establish a baseline in my experience but then the analysis has to be immediately followed by
a qualitative discussion/debate among all stakeholders.
Factors that often influence the
outcome of the discussion are --
1.Regulatory factors e.g In the above case if the law requires you to provide consolidated financial reporting there isn't a choice.
2.Organization politics - Each implementation could create, destroy or change job functions. organization politics could alter the value attached to information.
3.Organization structure - A lot depends on how autonomous the IT department is .
If the IT function is decentralized then the value placed on information could vary significantly. Also if business resources are paid to do IT jobs, the inherent friction between IT resources,business IT resources and the external vendors could significantly influence the value that each party would assign to information. This is where neutral management consultants could help quantify the baseline in a manner acceptable to all parties.
4.Coolness factor - Wikis are cool and so are blogs or twits. By default the value
associated with them carries a premium.
5.Licenses - If IT has licenses floating around of a certain product and trained
resources to implement it , it is automatically perceived to have greater value
compared to the information provided by a niche third party software .
In summary, there isn't a silver bullet to quantify information.
At best we have a set of axioms , a set of quantitative techniques and a
set of best management practices to help solve the problem - the mantra being do whatever you think is best for you. -
At December 24, 2009 at 6:57 PM,
Anand Prakash said...
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The business value of IT Investment needs to be seen with respect to the desired expectation of the company for which we wish to measure it.
one of the posible way to look at it as below .
4 aspects of value delivery can be measured ( Strategic ,Operational, Economical & Ecological ). A mesure of what was desired Vs what was delivered by IT can be a good measure to begin with -
At January 5, 2010 at 11:15 PM,
Sachin Sharma said...
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Measuring the business value delivered by IT has some complexity involved in it. Business value should not only talk in terms of monetary returns but also the non monetary benefits it brings about to the population of a developing nation like ours where IT is still an unheard word for more than 40% of the people.
Every IT investment can be accounted for the gains it delivers to a business by judging the following:
1) The efficiency or the productivity a business gets by reducing the operating cost.
2)The benefits it gives to customer(like the time saving and convenient CBS in banks)
Talking about the non-monetary benefits,every investment should aim at increasing knowledge and use of IT to chunk of peoples in the nation.Average investment in an year compared to the IT knowledge of the people would give a picture of the non monetary benefits. -
At January 7, 2010 at 6:10 PM,
Brauk said...
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Here are some examples of business value that IT has delivered.
1. Eleminated n number of service organization or finance org jobs due to automation
2. Increasing accounts recievable for the company due to autoamated solutions for billing/invoicing. Helps corpoaration with cashflow.
3. Increased business due to self service capabilities as compared to competitors.
4. Realtime analytics providing information to capture additonal business as in casinos.
