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Issue of July 2002 
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REALISING ROI
8 Industry Veterans share their Views

Calculating ROI (Return on Investment) on IT is no longer optional; it is rapidly becoming a requirement prior to any capital investment in IT. In the recent Network Magazine-ORG-MARG survey (Infrastructure Strategies 2002), 34 percent of the IT Heads said they consider ROI as an important decision-making parameter for an IT investment.

So what exactly is ROI? Simply put, ROI is the benefit, usually profit or cost savings, that accrue from a capital investment. These benefits are usually accounted for over a period of time, 3 years being the industry norm. ROI can be used for dual purposes: to develop a business case for justification of investment in a particular vertical or project and also to gauge how well an enterprise is managed.

The need for ROI
IT offers enormous benefits to an enterprise. In fact, IT has emerged from being just a back-office support function to become a vital business enabler.

Over the last few years the use of IT in enterprises has grown significantly. Then, there are the service-driven and process-centric industries where IT forms the core without which the business could not exist. The criticality and initial high investment that goes along with any IT project makes it mandatory for the IT Heads to properly calculate and justify ROI on IT budgets.

The silver bullet
So is ROI the silver bullet to analyze all IT investment decisions? Are all IT benefits quantifiable? For that matter is ROI the right or only way for measuring returns on IT investments? If so, how does one derive ROI and present his case before senior management? And how does one consider the qualitative factors that play an equally significant part?

There are many important questions that the very mention of ROI on IT brings up. Explaining how to calculate ROI based purely on some analytical techniques would be a wasted effort. Not only would we ignore the qualitative (or intangible) factors that play a significant role, many of the major benefits would not be highlighted at all.

To throw some light on these very issues, we thought it would be best to ask the IT Heads themselves, since calculating and justifying the ROI is one of their core responsibilities.

What we have in the next few pages are some eminent IT Leaders from diverse industries talking about how they calculate ROI, the qualitative factors they take into consideration and on how to convince senior management to adopt a particular technology for their enterprise.

 
     
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