ROI metrics that confirm IT delivers
We tend to talk about IT being an enabler but it is only by accounting for the return from IT that we can prove that it actually is. Building a business case is essential for good IT because:
- A business case justifies the investment and as the project’s sponsor this business case can to a degree justify your own value add
- It proves the investment so the next time you seek funding for an IT enhancement, you can point back to the business case you made and to the proof that the conservative (and that’s the key word to emphasise) conservative objectives you stated were achieved.
Some examples:
Origo, who are part of the Sisk Group and were one of Sysco’s first customers to implement Microsoft Dynamics NAV way back in 1998 decided to add customer self service functionality in 2008 through an online store which links directly into NAV. You’re about to see a demonstration of this functionality but before you see how it works, here are some metrics that Origo have kindly provided us with. In 2009 the year after the online store went live, 27% of all Origo orders were processed by customers online. This has increased to 34% of all orders this year to date while those orders processed via reps onsite has also increased to 9%. This level of customer self service has had a major impact on Origo’s operational costs since over a third of their orders do not require a physical order processer.
In addition, Origo had over 100,000 product lookups in 2009, which means customers looked up stock and/or pricing without any human intervention. They also had 5750 copy invoices and credit notes printed from the site, again negating the need for Origo’s credit control people to re-print and fax requested copies. They have also built in backorder tracking, return requests and query management functions that are heavily used by customers and sales people through the automated online application interfacing with NAV.
Another straightforward example is the return on investment that a number of our customers have achieved by enhancing NAV to email rather than physically mail invoices. In this example, our customer printed on average 3,000 invoices per month. The cost of paper, envelopes and ink was €225, the cost for someone to print and pack the invoices was estimated at €250 and the cost of 32 cent stamps was €960 a month. This gave an annual cost of €17,220 which over three years equated to €51,660. The cost of enhancing NAV to email invoices was €5K for the software (with an annual recurring charge of €500) and €2K for implementation and training. When you factor in the internal costs for IT administration and taking finance personnel from their day to day job the enhancement delivered pretty substantial annual ROI of 226% with a payback period of just 3 months.
As part of the research for Cloud Business, we discovered that Irish IT departments are not very sophisticated in accounting for their return from IT. The problem is building a business case is time consuming. And that’s where we can help because we have some pretty sophisticated tools to help you calculate the net present value, the payback period and average annual internal rate of return. The first thing these tools do is define your project objectives and these are crucial. These are the low hanging fruit which your IT project must resolve. The greater the level the detail, the easier to demonstrate success and to validate your results. If your main objective is cost reduction, then you should specify exactly what costs are going to be reduced and by how much. Similarly, if your objective is revenue generation, then you need to quantify the exact metrics you want to track.
This isn’t just good IT, it’s good business.
