When you run a business, you’re always looking to improve and gain a competitive edge. Many thought leaders in any industry would recommend using IT solutions to optimize business processes. But process improvements come at a cost, and you should know how to determine if a business IT investment is worthwhile. Here are some considerations when you analyze return on investment (ROI).
Quantify your gains
Most simple methods of measuring ROI will take the difference between gains and costs, but not all IT investments are tied directly to lead generation and conversions. For instance, you’re probably well aware of how much you’ve paid for SQL server managed services, so how do you measure the gains?
In this example, you can calculate the increased productivity of your in-house staff, which is a result of having extra work hours freed up with external specialists handling the optimization and monitoring of your database.
Measure cost reduction
Many IT systems and projects are designed to reduce costs for your business. This cost reduction can be quantified and factored into your ROI calculation. When you pay for a project management tool such as Trello or Asana, your team will reduce costs by eliminating paper waste and use of office supplies to collaborate and keep track of files and project status. You may even be saving on transportation costs since team members get to work remotely.
Consider the timeline
As with any investment, IT solutions typically require an upfront cost and pay off after some time. If you want an accurate ROI analysis, you should consider the timeline as well. It may take months or even years to reap the rewards of investing in a business analytics solution, for example. And other products, such as IT hardware, can actually depreciate over time, which is another element you should take into account when computing ROI over time.
Adaptation costs
Implementing an IT system is rarely a simple plug-and-play type of process. What usually happens is that personnel need to undergo specific training in order to use the new system properly. This can affect a specific team or department only, such as when deploying a new sales management software that integrates into your existing CRM. Or it could require the entire organization to be trained, as is often the case with new cybersecurity measures. The cost of adaptation to new systems can be significant and shouldn’t be overlooked in any ROI analysis.
Other intangibles
Investing in any improvement to your business processes can yield benefits that can’t be quantified. How do you set a precise figure corresponding to the benefits of providing a smoother customer experience from navigating your website, or better overall customer satisfaction from your support team?
These intangibles are certainly important, but it can be hard to factor them into any ROF computation. If such considerations are essential to your evaluation of an IT project, then value of investment (VOI) may be a better approach for your business to use. This lets you place more emphasis on the soft benefits of a project rather than focusing on raw measures of dollars and cents.
The core concept of determining a project’s ROI is easy to grasp, but difficult to put into practice. Take these steps to quantify the variables involved, arrive at an accurate result, and make the best decisions to take your business forward.
