ROI: An investment center is typically judged on its ROI: return on investment. The mathematical definition of ROI = i/c, where i is income and c is invested capital. Saying that IT generates ROI is semantically null from an MA standpoint, since IT typically isn't in the business of making investments that generate profit. To truly generate ROI for the business, IT would have to partner with an investment center. Our advice? Use the ROI moniker sparingly. Instead, concentrate on benefits and savings by working with business unit leaders.
Because ROI tends to be misused by various marketroids, it's not surprising that we heard cynicism and skepticism about ROI everywhere we went.
"I'm very jaded about ROI--every project always seems to come down to non-financial measures for justification," says a network infrastructure project manager in a large manufacturing company, whose attitude typified that of many managers we interviewed. The CEO must be convinced that there will be intangible benefits even if there aren't financial returns, he says.
"The CEO has been making that judgment for other departments anyway, like marketing. So 'if it positions the company' or 'makes things easier,' you get a green light. It has nothing to do with ROI. ROI is this idea that's come up to try to give 'measurability legitimacy' to IT," he says. "Well, no. We're not engineers the way manufacturing engineers are. ROI is some sort of MBA reaction to 'you can't manage what you can't measure.' There's all this value placed on measurables, and ROI is a stand-in for that. People say, look we've got this project, and we've got this number. Therefore I don't need to exercise judgment, I just go ahead and do it. But you've got to remember, the success of the project may not be in the numbers!"
As an IT manager, you need a practical knowledge of MA and a sprinkling of consultation with those who practice it daily. One interesting tidbit from a recent reader poll: Although 76 percent of you track the returns of a project and 39 percent do so with financial staff, many of you never consult financial staff before you start preparing a business case for a project, and when you do prepare it with them, about 30 percent of you consult them dead last. Our fieldwork indicates that those of you who do consult or partner while you're building the business case do pretty well. (If you're interested in boning up on MA, we recommend Managerial Accounting: Creating Value in a Dynamic Business Environment, by Ronald W. Hilton, McGraw-Hill/Irwin, 2001).
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