ROI 101: Myths And Realities

ROI 101: Myths And Realities

It will be the first question that’s asked if you’re trying to persuade your bosses to upgrade existing IT or install something new: what’s the return on investment? It’s a good question, but remember this: it’s not necessarily the right question.

The world of professional IT is filled with buzzwords, but they’re often undefined, misunderstood and abused. This week, our Myths And Realities series defines some much-discussed concepts and busts some of the myths that surround them.

What ROI Is

To calculate return on investment, you need two key figures:

  • How much the project will cost
  • The financial benefits that will emerge from the project (improved sales, improved staff productivity, lower maintenance costs)

Both figures are hard to calculate accurately. Even with fixed licensing and hardware costs, you have to factor in labour. The more complex the project, the greater the likelihood you’ll underestimate both cost and delivery time.

What ROI Isn’t

The only thing you need to measure. For some IT projects, ROI is simply an inappropriate measure. With security, for instance, the relevant measures relate to risk rather than cost. You can’t make a case for security offering a direct return; all you can do is point out the consequences if you don’t have them.

Benefits can also be difficult to quantify. It’s hard to calculate just how many productivity benefits email brings, and some would argue it has a negative impact. However, if you proposed to eliminate workplace email on that basis, the backlash would be immense and immediate.

An exact science. ROI is only useful if you’re always using a standard basis for calculation. Are you expected to account for opportunity cost (the things you don’t do because you’re doing a particular process)? Are other parts of the business also making those calculations on the same basis? If not, there’s no logic in comparing them.

Blackboard picture from Shutterstock