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We are getting more picky about projects we accept in the
IT Department as we are getting tighter with resources.
My boss wants to push each department / group to justify
their project with an ROI to determine where resources are
best spent.
Great idea but... none of these folks really know much
about doing an ROI and in most cases the approach will
be different depending on the project. It's not a cookie
cutter thing. I may end up being the person to see to
come up with a number, so I started looking for a class
to see if I could pick up some ideas. Not that I can't
wing it, but structure never hurts.
ESI doesn't offer such a class (this may be the first
confirmation that the task is impractical).
Where else do you do for Project Management classes?
Ever heard of such a class?
--Sarah
IT Department as we are getting tighter with resources.
My boss wants to push each department / group to justify
their project with an ROI to determine where resources are
best spent.
Great idea but... none of these folks really know much
about doing an ROI and in most cases the approach will
be different depending on the project. It's not a cookie
cutter thing. I may end up being the person to see to
come up with a number, so I started looking for a class
to see if I could pick up some ideas. Not that I can't
wing it, but structure never hurts.
ESI doesn't offer such a class (this may be the first
confirmation that the task is impractical).
Where else do you do for Project Management classes?
Ever heard of such a class?
--Sarah
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Re: Classes to Determine ROI?
Sun, September 19, 2004 - 11:57 AMROI is the holy grail of the management set when it comes to IT, and it's darn near impossible to gauge.
Reasoning: There are many things having to do with infrastructure improvements in the IT area that are not directly or easily attributable to a dollar and cents benefit to the organization.
For instance, if you put in a faster e-mail system, how do you gauge exactly how much time is saved, and by whom, to justify the costs. Most estimates are SWAGs (SERIOUSLY Wild Ass Guesses) when it comes to IT and ROI. If the main benefit is to satisfy internal customers (stop them from griping about how e-mail is slow and hard to use) how does that relate to improved productivity, and by how much??
Projects that are able to attribute direct ROI improvements, like increasing user interactions on-line, relating to an increase in customer sales and decrease in customer dissatisfaction and overhead costs are the plum assignments that most project managers dream of.
For most of us, justifying what to us is an obviously needed system or infrastructure enhancement doesn't translate well to upper management, who have to justify such large expenditures to upper-upper management and to stockholders.
Seriously, if you DO find a class that teaches how to determine ROI for IT projects I want to see it too. -
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Re: Classes to Determine ROI?
Sun, September 19, 2004 - 6:49 PMI agree with you with regard to it being the holy grail. in my current environment, we do not bill projects back to the requesting departments so they quickly figure out that the higher the ROI stated on their request, the higher the priority to get their project rolling since everyone is looking to cut costs and improve efficiency. The problem is that if the savings don't materialize after implementation, there are no penalties. A couple of months ago, we implemented a formal review by our finance department so that they could validate the savings projections to ensure that they were viable. The problem now is that the Finance folks don't want to be the bad guy and blow the whistle when things get a bit exagerated. In my opinion, I would like to see a review board consisting of senior managers / executives provide the final approval on the numbers and merits of major systems. Especially in big corporations, people are focused on the goals that will provide immediate gain to them rather than the big picture. I feel that the corporations officers have an obligation to their shareholders to provide this type of leadership and guidance. -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 5:01 AMI agree, in spirit, with what you're saying, but in reality, I've found that these selfsame upper managers don't know squat about what is actually useful to the corporation as a whole. Allowing them to make carte-blanc decisions about IT is just stupid, but there's not really too many other viable choices.
The best case is to have a designated Enterprise Architect which reports directly to the CTO to funnel new development/changes/enhancement requests through. At least they can see somewhat how it is beneficial from both the technical side and upper management side.
ROI shouldn't be the only deciding factor in adopting a system, since the numbers are inherently ephermal in nature. -
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Unsu...
Re: Classes to Determine ROI?
Mon, September 20, 2004 - 5:52 AMThat's kind of true, but when you have an Enterprise Architect working against the political machine, your destined to fail just as well. This is a problem since man figured out how to make fire. My point with having a board is that if I am going to go before a board and present a case why something needs to be done and how, you can bet that I have done my homework and I will not be trying to sell the board a solution because I am the only one to benefit from it or I'm getting a trip to a resort from the vendor. An Enterprise Architech addes value, but he/she may not know the business side of things. My career has been split roughly 50/50 between the end product side of my company and IT and I can tell you that there is a huge gap between the two continents and both sides will swear up and down that the other side is clueless. Leadership is what bridges the gap. -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 4:31 PMThat's why I suggested an EA AND a CIO/CTO instead of one or the other. By having hte EA explain the benefits to the CIO, he becomes the 'champion' of the project to the upper management types. Explaining it in upper-management-ese why it's a good thing.
The EA still has to do his homework to convince the CIO/CTO so it's not an issue of being prepared or not.
Also the EA might not know all the business side of things, but I doubt if they'd be long for the position without picking up the business rather quickly. Otherwise, what's their use to the organization? Architecture deals with solving problems, and you have to understand the problems to solve them.
Leadership is just getting them to hate you more than they hate each other. "It is better to be feared than loved"
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 8:29 AM"ROI shouldn't be the only deciding factor in adopting a system"
If it's not up to ROI- what's it up to?
No one is going to invest in a technology or upgrade without a specific ROI- It just wouldn't make sense. The people who control the money are looking at ROI. It's an absolute necesity for them. -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 9:30 AMIt's definitely ROI but it's hard to quantify. Every project needs to support business goals. Either is saves money, increases productivity (which is lowering your cost, aka saving money), increasing sales (making more money) or helping you meet legislative responsiblities (which helps avoid fines, jail,etc - aka saving monet... and your butt).
I guess it's all about money :) -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 9:40 AMFew businesses are open for the health of the owner and/or manager :) -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 4:26 PMActually, I'd say that's EXACTLY the reason for opening a business. Indirectly of course. More money generally equates to better health, better living environment and security from outside dangers. Also better for raising spratlings with, perpetuating the genetics.
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 11:43 AMYep.
The problem is not in the idea of requiring an ROI analysis for every project, but in the idea that ROI must necessarily be expressed only in terms of money. (Hint: Anything that can be measured can potentially participate in a more general ROI analysis. Also, projects can be prioritized if their expected ROI's can be ordered, and that needn't require exhaustive quantification of the expected returns.)
The rubber hits the road, though, because shareholders expect to be able to evaluate *their* investment in the firm entirely in terms of monetary returns. As we know, not everything in the enterprise can be usefully translated into those terms, but that's okay: it's generally enough to maintain adequate confidence among the shareholders (doing whatever it takes, under the circumstances).
So my answer to management that wants to see ROI's on all project proposals is to present them with a richer (and quantifiable, where possible) description of the expected returns: not just dollar amounts, but every kind of evolutionary change in the enterprise that is expected to result from the investment.
Successful managers know that it's not all about the money. -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 1:10 PMI think whats being discussed is ROO (return on oppurtunity) - here's a link to an older article that describes it:
www.computerworld.com/news/19...,00.html
The biggest problem with ROI is truly realizing all the benefits - and all the costs. Many costs and benefits are so entangled in most business systems and other projects that it's difficult to truly understand what goes with what project....like most other things it's difficult to get a true cost or true gain (even when selling a box of software - what was all the real costs and what's the real gain)
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 1:24 PMMark- No offense, but I think you're talking from the standpoint of an Engineer- a techie whose interest is in technology as oposed to business.
Look at this way- if you come to your COO and say "I have a great idea for product and all it will cost the company to bring it to market is $700G. We'll be the first to bring it to market and we'll dominate the entire market for 2 years or more- she or he will not give a cent unless you can show them indesputable evidence that they will recoup that $700 G. Businesses don't invest in a product unless the product proposes some value to them. It's just antithetical to basic business practices. -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 3:34 PMActually, I'm talking from the standpoint of a retired Fortune-10 management consultant.
The "basic business practice" you refer to is that of lumbering dinosaurs that are imploding under their own weight, not the swarms of voracious rodents that are taking over the planet.
I can't imagine a venture capitalist telling me she's not interested in my idea because I can't show her indisputable evidence that her investment will be recouped. If I had indisputable evidence, I'd get a bank loan.
Good managers know the difference between an acceptable risk and Victorian prudence. -
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Re: Classes to Determine ROI?
Mon, September 20, 2004 - 4:25 PMWhen I say Indesputable evidence- I mean doing Due Dilligence to find out exactly what the market is- who will buy it, in what numbers. Yes- it's a gamble, but it's a gamble that any solid VC will approach expecting realistic Financials, sales targets and forecasts and a bullet proof marketing plan. -
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This is the maximum depth. Additional responses will not be threaded.
Re: Classes to Determine ROI?
Mon, September 20, 2004 - 8:36 PMOkay, now we know that you didn't really mean indisputable evidence when you said "indesputable evidence". (You probably didn't mean evidence of any kind, for that matter, since you can't have evidence of future events.)
So what problem do you have with the concept of non-monetary ROI, other than your notion that it's something only a business-ignorant techie would talk about?
Apart from the points I made earlier with reference to the commercial sector, it's also important to consider IT project management in organizations for which a monetary bottom line is not the primary concern (e.g. nonprofits and governments). Non-monetary ROI is widespread in such organizations, of course (and is not promoted primarily by techies ...). -
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 5:06 AMI simply don't think that anyone would have motivation to invest in a project that doesn't hold value to them.
It goes against logic of project management. -
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 5:55 AMI agree, as long as you agree that value != money in all cases.
Non-monetary value is still a consideration, and ROI doesn't gauge that very well if at all.
I love (value) my family greatly, but I couldn't put a dollar amount of that love. I could 'justify' having a family by the tax savings I get each year, but that doesn't cover the whole value of my family.
A software example.
Microsoft does not make any additional money from system patches. Once you buy M$ stuff, you have to generally pay for support. Why do they create the patches if they don't make money off of them?? Because the consumer demands it. Microsoft (in some small way, and I can barely believe I'm saying this) values the good will of their customers, hoping that providing them with a free patch/upgrade that they will kindly buy the next windows version to come out. -
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Unsu...
Re: Classes to Determine ROI?
Tue, September 21, 2004 - 6:39 AMYour love for your business can't have the same emotional involvement as your family & friends... Everyone has a person in their live that they can't explain why they love them but they will do anything for them... Business is business and it's about make the best use of your resources. People are the companies biggest asset. There is no question about that but companies need strong leadership that can cut through BS. I work at a Fortune 50 company and I see high level and mid-level executives that put rediculous amounts of time justifying their new toys that they would not buy if they were paying the bill... Which by the way, every employee pays the company's bill. If you don't believe it, keep wasting money and I'll see you on your way to unemployment. These guys justify upgrading their Blackberries to color for a price of $500 - $600 so they can have the coolest toy at the bar and get IM's from their kids!! That kind of management is a drag on the company. I get IM's from my kids but they are paid for from my paycheck.
I want to see the high level managers throw people out of their office with a termination warning when they try to justify something like this that is explicitly for personal benefit. I get morons coming to me asking what the best cable broadband provider will give them the best basic TV channels.
Getting back to the topic of ROI... The excercise of developing ROI's gives people the right perspective to evaluate business decisions properly. It is amazing how many people don't have keep the company's interests in the forefront.
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 6:43 AMThat good will equates to money.
It's all about the dollar- like I said- no one is running a business for the health of the owner and/or manager.
Those patches released by Microsoft garner loyalty towards the brand. Loyalty equates to goodwill which increases the value of the corporate entity! It's simple Finance.
As far as some investment in what seems to be a tech as oposed to money issue goes- for example- Creative investing in P2P file sharing applications; it was to contribute to their portable MP3 products.
There is absolutely a 'monetary justification' required for a project or investment and the family analogy is false- your motivation for family is not increasing monetary value, however the the motivation for someone to open a business is monetary. -
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Unsu...
Re: Classes to Determine ROI?
Tue, September 21, 2004 - 10:26 AMThere are some that marry for money :)
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 11:00 AMMike says, "the motivation for someone to open a business is monetary".
Mike, if you really believe this is true for all entrepreneurs starting all businesses, then I simply feel sorry for you: you've been brainwashed. -
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 11:04 AMYeah Mark.
I disagree with you- so I'm brainwashed?
What kind of arrogance is this? How died and made you king??? -
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 1:41 PMI stay employed by someone else because I'm not after the money. I enjoy focusing on my freetime which my friends with businesses don't have yet. They may win in the end, but I'm having a better time at the moment.
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 2:06 PMMike says, "I disagree with you- so I'm brainwashed? What kind of arrogance is this? How died and made you king???"
If it's any kind of arrogance, then it must be the same kind of arrogance that led you to tell me that since you disagree with me, I must be a techie with no business sense.
We should agree to disagree at this point, since I'm not interested in a flame war. -
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Re: Classes to Determine ROI?
Wed, September 22, 2004 - 8:22 AMMark
Why are you defensive?
I didn't say you had no business sense- I said that you sound like your motivation is innovation as oposed to business.
There's a big difference. Now I'm sorry if the difference escapes you, and you were offended- I was actually not trying to offend you. Please accept my appologies.
And as long as we're on the topic- I want those engineers who motivation is simple and wonderful technical innovation on my team! I want those creative minds churning out the wonderful and truly amazing so I can bring those products to market and do everything in my power to corner the market before it becomes flooded with clones. :)
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Re: Classes to Determine ROI?
Tue, September 21, 2004 - 5:18 PMThe goodwill of your customers is important and it does add to the bottom line. Finances as you call it. But ROI is making a correlation of the AMOUNT of money to be returned for a particular investment of money. Seed money returning yields.
In the Microsoft example, the feeling of goodwill that they engender via the patchs doesn't correlate to an exact amount of money, or even to an estimated amount of money. But it's an important aspect of continuing business. If the customers were (more) unhappy, they might be more inclined to pick an alternative OS.
Creative dumping money into P2P was a speculative action, and probably didn't cost too much overall. But I'd still like to see any documents justifying the expenses and exactly what they were looking to get out of it.
And yes, the family analogy breaks down a little when you're talking about money, but holds up fine when you're talking about intangibles (personal satisfaction, happiness, joy, etc).
How much would you say feeling happy is worth to you?? Isn't that valuable? -
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Unsu...
Re: Classes to Determine ROI?
Wed, September 22, 2004 - 8:02 AMIn business, profitability is a key ingredient for happiness... at least for me. And if I'm going to a place where I'm loosing money all the time, it will trickle back in to my family life no matter how much I would try to avoid it.
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Re: Classes to Determine ROI?
Wed, September 22, 2004 - 8:14 AMKen,
I guess it all comes down to risk and investment. :)
If you can present a great case for your project that might return great cash in terms of brand building, market share, etc... and while it doesn't come across in immediate numbers, someone who is looking at the big picture will see the future numbers in forcasts and see the long term value versus the risk and make a decision based on their best judgement. -
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Re: Classes to Determine ROI?
Wed, September 22, 2004 - 10:48 AMMike,
I don't see how this differs from what I said originally with which you disagreed: "So my answer to management that wants to see ROI's on all project proposals is to present them with a richer (and quantifiable, where possible) description of the expected returns: not just dollar amounts, but every kind of evolutionary change in the enterprise that is expected to result from the investment. Successful managers know that it's not all about the money." -
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Re: Classes to Determine ROI?
Wed, September 22, 2004 - 11:00 AMSorry- I misread- I thought you were talking about exploring new technologies even if there's no market for it- which some engineers do- they just don't get very famous...
Sorry about the miscomm. It was my bad -
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Re: Classes to Determine ROI?
Wed, September 22, 2004 - 11:37 AMOkay, that explains it. I wasn't just talking about projects that bring new products to market: most IT projects are internal or in not-for-profit settings, and the expected benefits are frequently non-monetary and difficult to even quantify. (But conventional wisdom requires monetary ROI's for all projects, regardless.)
Your comment here does bring up another question, though: Do we need to assume that the exploration of new technologies must necessarily proceed only within existing markets?
And does that imply that the development and marketing of, say, the first VCR was an improbable fluke by an uppity engineer, or does it all just boil down to the semantics of what we're calling "the market" within which the innovation is happening (e.g. VCR's as an innovation in the entertainment market, not as the focus of a previously nonexistent VCR market)?
It seems that new technologies can create their own markets, which would imply that just about any new technology could be justified for *exploration* (which doesn't imply that the new technology has to be *marketed* -- sometimes it's valuable to gain confidence that none of your competitors are going to be able to solve the problem either). -
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Unsu...
Re: Classes to Determine ROI?
Thu, September 23, 2004 - 5:02 PMI just wanted to clarify: the company I work for is a retail company. We support about 500 retail stores nationwide. I used to do technology companies & dot.coms but went through quite a few companies and this has been much more stable. I've been here over a year at this point (LOL).
We are approached for all kinds of assistance from all departments: operations, marketing, accounting, supply chain, customer service, store construction, etc. to assist with a wide variety of projects. Most will not bring in any revenue as we don't sell technology but all should be justified by some reduction in cost or labor.
So we are looking for a way to determine how to prioritize projects that are very diverse in such a way that we are beign "fair" across all requestors.
We felt ROI would be the best way to make that judgement. I just think it is also a very subjective measure. It's an estimate and most of the "numbers" involved are estimated guesses.
Opinions now that you are more clear on the type of projects?
Thanks for all the great feedback. I may have to introduce my boss to Tribe :-)
--Sarah -
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Re: Classes to Determine ROI?
Thu, September 23, 2004 - 6:53 PMIn that case, it sounds like you should be prioritizing projects based on the objectives being pursued under your strategic and operations plans.
In that case, I'd say that strictly monetary ROI would be the best measure only if all your current objectives concern just your bottom line. If you have objectives pertaining to reducing the number of customer complaints, employee job satisfaction, diffusion of brand recognition or countless other parameters that may be difficult to express as expected dollar impacts on your bottom line, then I'd say you should be using measures that correspond to your objectives.
Once you have the right metrics, you should be able to prioritize your project proposals on the basis of how well they further your current objectives against how much you expect them to cost. That's why your planners came up with quantifiable objectives in the first place, after all.
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Unsu...
Re: Classes to Determine ROI?
Fri, September 24, 2004 - 10:41 AMFor our projects, I created a spreadsheet which captured all of our current costs and the cost to implement the proposal. Keep in mind that these overlap for some period of time. I then project out the payback over a 5 year period. Sometimes we need to go out longer than that to evaluate / support a strategic direction and we list the intangible benefits of the strategy separately with estimated costs/savings for the intangibles. We don't factor them in the financial analysis because they are soft costs. This approach has served us well because it takes the politics out of the financial analysis and gives you a real world view of the absolute costs.
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