Saturday, December 05, 2009

I Respectfully Disagree

As I was searching for some references for a risk management white paper that I am writing, I stumbled upon an old PowerPoint on the Web titled, "Risk Management and ROI: The IT Leadership Financial Conversation." It was created by Peter G. W. Keen of Delft University in Sepetember 2004. This PowerPoint was used to educate an IT Leadership community attending a CIO summit.

As I looked through the PowerPoint for some insight to use in my paper, I started finding statements such as:

"ROI from IT: There is none. There never will be." (Keen, 2004)
"ROMI not ROI: Return on Minimized Investment" (Keen, 2004)
"80% of IT costs are hidden below the surface - and a navigation threat" (Keen, 2004)

The more slides I viewed, the more I realized that I completely disagree with the intent of the message; essentially to encourage CIOs to view IT as a business liability which needs to be tightly controlled and driven primarily by its cost drivers.

I disagree because I think a better approach for CIOs to take is to understand the purpose of the technologies their teams are evaluating, understand the costs and benefits, and choose projects which support the objectives of the organization. Managing cost should be part of the decision making process, but it should not be the primary driver. When cost is measured, all aspects of cost should be included. And, the financial benefits of the project should also be measured and included.

The objective of Information Technology is to facilitate two very important capabilities for today's businesses:

1. Revenue generation
2. Business productivity (process efficiency)

Most leaders in the IT space generally understand the financial benefits of the IT projects they choose to pursue, but perhaps the IT industry as a whole generally does not place enough emphasis on methodologies and practices for measuring and translating these back to the financial statement. This would require more focus, analysis, calculation, and validation.

To be clear, I am not saying that all IT projects are sensible and they should be done blindly. However, what I am saying is that it is incorrect to characterize IT as a business function that shows no return on investment.

If you deploy a technology that allows people to attend meetings over the Web instead of traveling to another location, then your costs are those which are required to implement and maintain the technology while your savings are those which you do not spend to travel? Both sides of equation need to be considered, not just cost.

I also disagree with the claim that 80% of IT costs are hidden. I believe that if budgeting is done properly, most IT costs are completely visible and manageable. There are always some unforeseen costs with IT, but by learning from past experiences, it becomes possible to anticipate these variations.

In summary, I disagree with the PowerPoint. Information Technology can have a positive ROI, and costs can be manageable and predictable. I think the real problem is some organizations just don't know how to measure these things effectively.

Keen, P. (2004). The IT Leadership Financial Conversation. Retrieved December 5, 2009 from www.peterkeen.com/presentations/IT%20Risk%20Management.ppt.

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