Return On Investment

This is the magic number that finance managers like to ask for and IT geeks like to dodge. The return on investment is the only true measure of the cost effectiveness of your IT investments. However, the difficulty is in determining the parameters on which ROI will be calculated. This requires that any ROI measurement be pegged to some business driver that is suffering due to lack of technological support. The decision to use the business driver as the measure of ROI should be established through a consensus among the various project stakeholders. For example, a company may have a purchase process that is currently not efficient. A software has been identified which will improve the efficiency of the process. To calculate the ROI, we would first determine the cost of the current process and then compare it with the revamped process. The difference in cost between the two processes measured over a pre-agreed period of time will be the basis on which the ROI calculation will be worked out. However, this approach has its drawbacks, and in some cases where the change is not so readily visible, it may be that ROI is locked in to some secondary process.