More real ROI

Recently, I wrote an article about how IT organizations use return-on-investment analysis to justify projects, but they don't follow through with measuring the actual return on investment. Apparently I hit a raw nerve with some of our readers.

A majority of you validated that this is happening out there. (Just one reader was incredulous that CEOs wouldn't require their companies to measure actual ROIs.) In addition to validating that this is happening, several of you asked how to measure actual ROI - so I've put together a few thoughts to help you work through the process for your company.

It's a matter of putting in place a process to collect data BEFORE deployment of the tool. You need to do some baseline measurements beforehand, so you can compare them to the data collected AFTER deployment. How do you identify what areas to perform the measurements on?

Here are some ideas. If you've gone through the ROI process for justifying a particular tool, you've already identified areas where the tool may save money. In some cases, the management tool vendor may have an ROI calculator, which may help to identify areas of potential cost savings or revenue opportunities. If your vendor doesn't have such a tool, or the tool is generic, the vendor may still be able to give you an idea of where other customers have found cost savings.

The key is to capture info before implementation and then to capture info in those same areas after. Pay particular attention to timesavings. The collection of data on timesavings should compare apples to apples. For example, if workers' time is reallocated because they have more time available, that should be captured as timesavings. Even though you still have to pay them, they are doing functions that would have been done by someone else.

So, you first keep track of the time they spend doing their jobs before deployment. Then after deployment, allow a reasonable amount of time to let things settle down and again keep track of how they spend their time. Compare the two scenarios and quantify the timesavings. Multiply the timesavings by the amount that person is paid to get the amount saved for that person. This process should be repeated for all personnel affected by the tool - IT staff and users both - and the results totaled.

At the operational level, I suspect you'd save the most money from being able to diagnose problems more quickly, not having to upgrade hardware as often, spending less time on routine tasks, spending less time sorting through screens of data, and so on.

You should also consider in an ROI calculation the efficiency of the IT staff - for example, if the efficiencies gained by deploying a management tool allow an IT staffer to manage 4,000 workstations, where the previous limitation for that one person was 1,000.

Another area to examine is at the help desk. It is important to capture data on the types, numbers of calls, and length of calls before deployment. Then, capturing the same data after deployment may reveal some efficiencies gained not only by the help desk, but also by the employees who aren't calling as often.

If the management tool provides IT or business managers with more complete or better data, then that's another area to measure efficiency. How much time did the data save the manager? Multiply that time by the amount that the manager is paid.

We've been focusing on cost savings. Another area to consider for ROI is increased revenue opportunities. For example, an e-commerce Web site would provide added revenue opportunities, and those opportunities must be factored into the actual ROI calculation.

At Enterprise Management Associates, we create detailed ROI tools specifically for products. These tools are generally used for justification, but there's no reason these types of tools can't be used to help quantify actual ROI.

These ideas are not all of the areas of efficiencies gained, but at least they are a start. Even if your company doesn't have the time to gather every single piece contributing to the return on investment for an IT initiative, the effort should be made to at least gather the main data on actual cost savings and revenue opportunities. This information will provide valuable insight into the value management tools provide to your organization, will help to justify future initiatives, will give you visibility into where management tools can provide the greatest leverage within IT, and it may surprise you to see how the efficiencies of tools vary greatly.

Dennis Drogseth is a director with Enterprise Management Associates, a leading analyst and market research firm based in Boulder, Colorado, focusing exclusively on all aspects of enterprise management. Dennis has extensive experience in network management platforms and products and is researching trends in management software and changing IT roles internationally. His 18-plus years of experience in high-tech includes positions at IBM and Cabletron. He has been quoted in the press and is a speaker at industry events. He can be reached via e-mail.

Audrey Rasmussen is a research director with Enterprise Management Associates in Boulder, Colorado, a leading analyst and market research firm focusing exclusively on all aspects of enterprise management. Audrey has more than 20 years of experience working with distributed systems, applications and networks. Her current focus at EMA is e-business, SMB/SME and MSPs. She can be reached via e-mail.

Enterprise Management Associates in Boulder, Colorado, is a leading analyst and market research firm focusing exclusively on all aspects of enterprise management software and services.