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Lehane Kellett
Head of Technical Consulting,
Paul Mason Consulting |
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Return On Investment (ROI) is often mentioned, but rarely understood. It is more than just a 'business case' or about Total Cost of Ownership, it's about whether the investment in technology will deliver real payback to the business. And in today's retail business climate, payback is what it is all about. So, how should one approach the process and what are the pitfalls? This may be familiar territory for many, but it's worth stating. Many worthwhile projects fail to get started whilst others should never be approved - a well thought through and presented story will prevent this.
First consider the reason for the project. Building the case around well understood and powerful topics - such as increasing competitive advantage, like-for-like sales, legislation and compliance, reducing losses and combating fraud - helps common understanding. Any project should synchronise with the company's strategic objectives, to which the IT strategy should also be aligned. As all IT directors and project managers know, there are numerous projects that fall into the 'end of life' or replacement group, which can be hard to phrase in these terms. For example, Chip & PIN has provided leverage in some cases but for others, reducing support costs and minimising risk remain areas for investigation. Sweating the assets and partial replacement of
peripherals or application software, may also provide persuasive arguments.
Assessing the benefits and assigning value is often a difficult and
time-consuming task, especially when the metrics do not exist in the organisation. This is typical of many mid tier and smaller retailers. One can look to the larger organisations and published external studies for some pointers and work internally on defining meaningful metrics. In doing so it is obviously important that the business buys into the course of action and the resultant outputs. Indeed, business engagement is paramount at all stages of the process. Aside from the hard benefits, the soft and non-quantifiable
benefits should also be documented.
One should also consider the project costs. Very often immense effort is made to gather the benefits, however the costs side of the equation is
given too little time and attention. Frequently vendor costs are a significant proportion of the budget, so consider an early RFP, prior to a formal ITT, to narrow these down to realistic numbers and you may also be able to shortlist at the same time. The internal costs are usually easier to quantify, but costs can escalate when earmarked resources are not available and external
assistance is required - it's important to factor this in if it is likely to happen. Running and support costs, plus consumables if applicable, will all affect the ROI. These are often considered to be generic, but there may be significant differences between vendors.
Once the costs and benefits are understood how does the business case stack up? If it doesn't, then there are certainly better uses for your time and the company's money. Perhaps the timing isn't right and the technology, such as RFID for example, will become cheaper. If the case is marginal then what would the effect of any delay or cost overrun do to the model - consider some Monte Carlo analysis.
In presenting the ROI story it must be believable and pass the reasonableness test. Include the project opportunity costs, the risks and mitigation, the assumptions and the strategic impact, especially on other ongoing projects. Engage with third parties or vendors and review case study references,
ensuring that these are 'real world'. Most importantly keep the material, whether it is a board paper or a slide presentation, short and focused on the target audience.
There are downsides to a prescriptive approach to an ROI model. Infrastructure projects, such as wireless LANs, often quite rightly are seen as an investment - be wary of using it to hide someone's pet project. The adage 'garbage in, garbage out' applies and the quality of research will reflect this.
Finally, the project is completed, the party's over and the business and users are happy. A job well done? Not quite, go back and review the benefits and costs as part of a long-term implementation review to feed back into future projects. You may even find some nuggets for the next ROI story.
For further information contact Lehane Kellett, Paul Mason Consulting, Tel: 01235 838140
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