impossible for ideas to compete in the marketplace if no forum for
ROI as it applies
to eCommerce or IT Projects
Sponsored by: One Inc.
The Business Forum organized a closed Luncheon discussion with One Inc. experts on the above subject at the Los Angeles Marriott Hotel in Los Angeles.
Archdiocese of Los Angeles - Executive Director *
County of Los Angeles Information Technology Branch – Division Manager
* Computer Sciences Corporation – Member of the Technical Staff *
Manufacturer’s Bank - Vice President – International Officer *
William O’Neil & Company - Vice President Information Systems * The
Fashion Institute - Strategic Technology Solutions Director * Infonet
Services Corporation – Director * Merle Norman Cosmetics Inc. - Director
of Information Systems * Candle Corporation – Director The Boeing
Company - Member of Technical Staff * The Boeing Company - Program
Advisor * Wildcat Entertainment Inc – President * Crown Peak
Technology Inc. – President Cedars Sinai Medical Center - Director
of Internal Audit * Sempra Energy - Software Projects Director *
Warner Brothers Studios - Vice President Controller * Memorial Health
Services Information Technology Director * DHX Inc. –
Information Technology Director
For the benefit of those of our members and supporters who could not attend the meeting we present the following white paper, with contacts.
ROI as it applies
to eCommerce or IT Projects
By Tim Rohde
A Note on “Strategy”
Using the word
“strategy” could have shortened the title of this article.
Unfortunately, the word started with several meanings and now, thanks to its
constant misapplication, has none. If you want your IT projects to
sell up the chain easily and to achieve measurable business results, you’re
going to have to hear the word “strategy” more often than your own name.
Here is a definition of strategy that will cut through miles of dust for anyone
in a for-profit business:
Strategy: A plan
with identified short, medium and long-term goals related to revenue growth,
cost reduction, company value, market evaluation and opportunity cost. For
the plan to be a strategy it must balance the natural antagonism between short,
medium and long term needs and be prepared to generate a relatively positive
result under all reasonable circumstances.
The herd of cats will immediate yowl over this definition. It lacks a reference to competition, price leadership, differentiation, and focus; there are no stars or cows or dogs or question marks; it lumps functional, business and corporate strategy into one big bucket…. The cats are all correct in their criticism. Please lambaste me via email ([email protected]). Feel free to blame me for everything that is wrong with this definition. Just make sure the discussion eventually comes back around to making money, saving money and building the company.
Finding the Goals
IT is concerned with
systems. These systems share one common trait; they all have inputs and
outputs. A company or division has a similar structure. Its inputs
and outputs are in the form of monies, goods, services and waste.
Theoretically the company or division adds some value to the inputs that is
reflected in some of the outputs. Like any system, the interface
constraints, throughput and capacities of the system limit its capacity to add
value. Time and culture are major factors in this because today’s values
and needs may not be the same tomorrow. This caveat holds true for a place
or group of people as well.
So the questions for the
IT decision maker are, “What business inputs and outputs will be changed by
this new system or by maintenance of an existing system? What will it cost
to make that difference? When will those changes produce a net benefit
greater than other alternatives? Will the users recognize and accept the
path to benefit? What is the impact in the short, medium and long term?”
Oh, and I almost forgot, “Does this support the company’s strategic
objectives and, more importantly, its strategic maneuverability?” There
goes that word again.
Hopefully, your executive leadership is considering several dimensions (including time) in their strategic process. Unless something is very wrong, the process will produce a return at some point. If you find that revenue growth, cost reduction or company value aren’t among today’s priorities, you’ll need to find out what today’s priorities are and how they relate to those goals in the future. Without this insight it will not be possible to assign priority and value to any proactive IT spending. Strength of will, reference to competitive trends and FUD (fear, uncertainty and doubt) campaigns will work to get a project through but it’s a bumpy ride with dangerous turns and an unfamiliar destination. Most effective people like a clean win when they can get it.
Aiming for the Goal
Once you have an idea of where your company wants to be at what points in time, you can establish the benefits that a system or systems can deliver toward that goal. The trouble you’ll run into is that identifying, establishing trace-ability for, and quantifying these benefits in detail is often a gigantic job. It gets more complex when you add time and change to the equation. This is the point that makes most IT shops choose to be excellent at reactive development rather than confront the job of taming the beast. This is also a good time to scream the word, “POLITICS” at the top of your lungs.
Go to the Center of Danger and There You Will Find Safety
measurement of your systems from the point of view of strategic and financial
decision-makers. Present your plans in a form they can use (with your
help). Team with them in structuring the internal value proposition of IT
efforts and support them in presenting it in their language.
These questions and
ideas all boil down to the same pattern: leverage the core competencies of other
departments and decision-makers whenever possible.
1) Did you find a strategy when you went looking for one? (See the above definition of strategy – that’s the one I’m talking about).
a. If yes, then someone should have an idea of the how much money the strategy is projected to bring in and how much is projected to go out at what times. Support or improve these numbers with systems and everybody wins. Look at the features of the system with an eye toward quantifying each feature according to its part in the big picture.
b. If no, assume an approach that adds company value, increases revenue or decrease cost every year is the best approach for IT. Measure every quarter and make sure that no two consecutive quarters produce a net loss. Get help from the accounting and finance side of your company to do this appropriately.
2) Does your accounting department use the FASB 86 rules for GAAP:
a. FASB 86 allows companies to capitalize new applications and expense maintenance on existing applications.
b. Discuss the accounting impact of the project life cycle with the appropriate people. There may be a method of accounting for your IT expenditures that gives you more flexibility and/or affords more benefit to the company.
3) Does your leadership use NPV (Net Present Value) analysis to make decisions about internal investments such as IT projects?
a. If yes, get in contact with the analyst(s) responsible for this work and step through their evaluation process. You might find that the risk to the organization of not investing in IT projects is outside of the constraints of their model. It’s unlikely that an 8% bond is worth more to your company than a working email system but that’s the type of result you can get with NPV if you’re not careful.
b. If no, find out how the future (and opportunity cost) fit into the decision process for IT projects. Your leadership may not understand that IT projects are investments in the future with a pay-off they can count on. If they don’t get it, paint them a picture.
4) Does your company have detailed knowledge of its processes and their costs and benefits?
a. If yes, that information is gold. Get it and use it.
b. If no, work process discovery into the requirements gathering phases of your projects and give ownership of the process documents back to the manager(s) in charge of it. Version control the process documents. If you use more sophisticated process mapping tools – you probably don’t need any of this advice.
5) Does your company use any metrics (measures) that are already associated with financial assumptions?
a. If yes, get to know these well and stay on the lookout for ways of improving their accuracy and availability.
b. If no, you will need to identify a minimum set that will help in understanding the financial impact of things that may be improved with technology but are not currently measured in a way that would show its benefit.
Paint a Picture of the Goal Achieved
What do you do when a
number of constituents with varying levels of power need to commit to a
coordinated approach to a potentially chaotic situation that might win them
major benefits and will cost them serious effort? For the last 17,000
years you had to paint them a picture on a wall. Who are you to buck
System Context Diagrams consistent with the work of Tom DeMarco and James and Suzanne Robertson are an excellent way to get people with varying levels of technical sophistication on the same page. The great thing about their methods is that anything that flows in a direction can be modeled as a system. This level of flexibility is necessary if you’re going to define the flow of information, monies and goods between your company or division and others.
These flows can be
modeled in increasing detail through departments and/or enterprise systems right
down to a piece of stored data. Color coding or other methods can be used
to depict changes through time. Anything not requiring immediate attention
can be left at a higher level of detail without losing a sense of its connection
to more detailed matters.
Everything that flows between two objects has a cost and a benefit to the company. Even receiving funds has costs and benefits associated with it such as systems, labor, and more particular issues like float. Having a clear idea of the net value of each of these flows gives you several immediate benefits:
Hit the Target & Measure how close you are to the Bull’s-Eye
Most planners are
obsessed with whatever facts they can get their hands on about their domain of
inquiry. Build the measurement of a given system’s value into the system
if at all possible. If not, find ways of collecting credible and useful
data on its value. When you discuss these ideas with strategic, accounting
and finance people, look into what data they will need to validate the
assumptions you will make to create the model. This factual data will be
vital to the future use of these types of methods.
Regular delivery of this type of information will train your organization to think of IT as a source of measurable benefits. IT costs will be seen in a new light. Objective measures will alter the political landscape in a way that, at least, provides a common view of a system’s value.
Start Where You Can
These methods are only one means of many to map IT projects to the top and bottom line. The most important step is to discuss measurable value with the people who measure it. The most important message to take from this article is that it is possible to connect IT projects to making and saving money for your company without going crazy trying.
Tim Rohde is the Business Intelligence Practice Manager for One, Inc. – Los Angeles. Tim is an instructor for DCI’s eCRM and eB2B Universities – the only national accreditation program for these disciplines. As a board member and instructor, he is also assisting Cal State Fullerton in designing and implementing an eCRM accreditation program. Tim leads a team of business consultants responsible for operational strategy, business analysis, systems analysis, change management and project cost justification for leading clients in entertainment, travel, commercial real estate, healthcare and technology.
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