Measuring the return on investment (ROI) for technology investments is generally seen as an important tool in effective IT management. The logic behind conducting ROI studies is obvious. Faced with a continually accelerating rate of technological change, companies must constantly invest to upgrade and improve their IT assets. And as data is increasingly understood as a company’s most valuable asset, the stakes for technology investments have never been higher.
The basic formula for calculating ROI is simple enough. Calculate the overall cost of specific IT projects and compare that to either how much money a company saves or the incremental revenue it generates over a period of time. The difference is the ROI. The higher the return, the better the investment.

But ROI studies are harder to implement than the formula suggests. The difficulty in calculating ROI for IT projects is one reason that, generally speaking, these studies are frequently not conducted. In fact, a recent survey of 415 IT professionals conducted by Unisphere Research in conjunction with Noetix called “Key Metrics for Measuring ROI for Business Intelligence Implementations” found that only a little more than one quarter of all respondents conducted ROI studies for significant IT projects, and almost 11 percent never conducted ROI studies.

ROI for BI

Since business intelligence (BI) is generally used across large enterprises, it should be expected that it would be subjected to sophisticated fiscal management similar to other large IT implementation projects. But this is not the case. In the Unisphere Research survey, more than 30 percent of the respondents said they did not perform a cost justification before investing in BI. Nearly 55 percent said that they never calculated the ROI for their BI implementations. And 77 percent have never calculated their total cost of ownership for the BI implementations. Nearly 60 percent of the respondents said that the most significant challenge to calculating ROI is that real costs and specific benefits are hard to quantify. Assessing the overall impact of BI on corporate performance is also hard to assess. Finally, calculating ROI can be complicated and can take a considerable amount of time.

Business Benefits

Clearly, the difficulty in conducting meaningful ROI studies for BI implementations has discouraged many enterprises, but conducting ROI studies for BI delivers many benefits. A follow-up study of 280 IT professionals called “Challenges and Alternatives in Measuring ROI and TCO for BI Implementations,” also conducted by Unisphere Research in conjunction with Noetix, found that IT professionals saw real potential value in demonstrating ROI for BI. Nearly 90 percent of the respondents said that effective ROI analysis would enable them to invest more in BI. Around 85 percent said that knowing the ROI for their technology investments would make it easier to justify purchasing additional hardware and software. And nearly three-quarters of those surveyed said it would be easier to forecast technology needs if they knew the ROI for their current implementations.

Granted, conducting meaningful ROI studies is not a trivial task. We are all aware that when faced with the day-to-day pressures of operational pain points, bypassing the ROI process can expedite the delivery of a potentially beneficial solution. However, companies that do conduct ROI studies can realize significant business benefits and can gear their investments to those technologies that will have the largest positive impact on their operations.

About the Author:

Morris Beton is the chief executive officer of Noetix, which provides software that enables immediate access to enterprise data. www.noetix.com