Putting value on IT projects

Most businesses technology projects are so badly articulated that they cannot meet their objectives or justify their costs, writes Karlin Lillington

WHAT IS an organisation's investment in information technology (IT) management actually worth to the company's bottom line?

That may seem an obvious question - most organisations have a day-to-day reliance on complex IT systems that in turn need their own management infrastructure.

IT management software investments can run into the millions. Typically, 2-10 per cent of turnover is invested back into IT. But currently, there is no way of objectively analysing and evaluating how such systems contribute - or not - to an organisation.

Joe Peppard, professor of information systems and director of the Information Systems Research Centre at Cranfield University Business School in Britain, hopes to change that.

Dublin-based Peppard, who is also the chairman of Irish software company Fineos, is heading a research project at Cranfield to determine just that.

"Executive management and CEOs don't have the language, models and tools to have a business-oriented value conversation around their IT infrastructure," says Peppard.

"We're also trying to think about how an organisation might put a value on legacy [past IT] investments."

He notes that organisations generally have problems with implementing IT projects. Statistics show that only 60-70 per cent of them are successful, he says.

Nonetheless, techniques for measuring the value of those individual projects are well-established. "There's been a lot of work on the value of IT projects - we know that," says Peppard.

"But a company might have hundreds of those projects in any given year. So how do you manage all that as an asset?"

Another difficulty in assessing value comes from the fact that IT tends to be an IT department concern, while business objectives are managed by the board and company managers. The two divisions often do not exchange much information and IT managers and company information officers have less access to the board.

That means that IT projects are often not properly integrated into the functions of the organisation, says Peppard.

"The value of an IT project ultimately comes from the business changes the project supports. And historically, organisations are very poor at implementing the necessary business changes."

In addition, IT projects are thought of in terms of costs to the company, rather than value to the company. So, asks Peppard, "how do we move this investment to be an organisation asset? We're trying to move away from traditional return-on-investment calculations."

But surely there are methodologies for doing so by now - decades after companies have been bringing in IT to power their organisations?

"Well, look at the area, computer scientists are interested in, the hardware. Business schools are interested in the business strategy. I think what we're trying to do is bridge the research that technologists have typically done, with the research in businesses," Peppard says.

"It is an extremely difficult problem," says Gabriel Silberman, director of CA Labs. CA, formerly Computer Associates, is helping to fund Peppard's research.

"There's not a lot of real understanding of when do we see a return on investment and when will we see an advantage. To date, that has been answered on faith."

Silberman says when CA first started talking to consultancies and research groups about doing a research project, many said it was too difficult.

A big problem is a lack of terminology and language for an area of concern that falls between IT and business strategy.

"We're trying to set up this framework and give access to all academics and maybe let them build research upon it. We want to get people to start thinking in non-traditional ways, but they need to have a frame of reference and a language," says Silberman.

Peppard notes that although the idea is abstract, that shouldn't be a barrier: "There are methodologies for brand evaluation, for example."

He says human resources is thought of in much the same terms as IT, as a cost rather than an asset. "Like IT, people don't appear on the balance sheet, people are treated as a cost and an expense. It's the same with IT - it is treated as a cost and expense to be minimised. We're asking, can we put in place some sort of method to put a value on this sort of investment?"

He says there are some ways of demonstrating that IT investments are very clearly an asset.

"If you were to pull the plug on a data centre - it does give a sense of some value," he laughs.

He also points to the hard and very public lessons learned by the Sainsbury's supermarket group a few years ago, when it handed over a major IT infrastructure project to Accenture and ended up with a failure of its supply chain and empty shelves in its stores.

The research is following a three-stage strategy. The first "conceptual" phase, a review of existing literature and the soliciting of statements of intellectual capital produced by companies, is now complete.

"The second phase is to work with colleagues at other institutions. The research will operate on an open innovation model, working with other institutions to get data. We're asking what are the practices around these areas, what is actually happening in the marketplace?" says Peppard.

"The third phase will actually draw on these data to create in-depth case studies.

"We'll look for organisations doing interesting things around these areas and look to detail the processes of what they're doing and particularly the outcomes. What seems to be the best practices in these areas?"

Peppard says IT projects within businesses are so poorly articulated that most cannot meet their original objectives.

"So I think a lot of businesses have a hard time justifying costs for IT projects in the first place. The business case is actually parked after the project is funded, and never looked at again.

"Business hasn't come up to speed in terms of its involvement in insuring goals are delivered. It should be a joint partnership between the business and the technology."