Wednesday, August 08, 2007

The ROI syndrome .... Worth Part I

I haven't posted for a bit, so I thought I'd post some personal and somewhat unpolished views on worth, utility, web 2.0 and why it's all connected and why we are entering a major transformation of the IT industry.

To start with I'm going to explore the concept of worth within corporate IT.

Most organisations seem to be shockingly bad at determining the potential worth of an IT service. This is something I've been harping on about for over a decade and it usually starts with the following conversation.

Client: "We'd like to build this internet thingy - how much will it cost?"

Supplier: "Can you give me details on what you want and how many people will use it?"

Client: "Sorry? we want to know how much it will cost?"

Supplier: "I'll tell you once I know the details and how much it will be used?"

Client: "We don't know that, it all depends upon what happens, what people will want and how popular it is. We need to get the cost sorted in order to get the budget"

Supplier: "Ah, the old ROI syndrome"

The old ROI syndrome

Most organisation have ROIs (Return on Investments) that internally they need to achieve, and IT projects need to show an ROI - whether it's value added or cost saving.

Now the ideal way to deal with this, is to calculate the worth that a new service will bring (sales, cost saving, risk etc) and then calculate the maximum you can spend based upon the ROI required and finally determine what your spending focus should be. The problem is that calculating worth of something can sometimes be very difficult, it depends upon popularity, usage, what your are trying to achieve and other factors and hence most ROI calculations tend to be based upon the cost of something.

Now there are three class of problem - CA (competitive advantage), Transitional and CODB (cost of doing business) - I'll deal with each one of those in turn over the next few days.