Performing the ROI calculation in IT processes is one of the major challenges for managers in the field, but this metric requires close attention. It provides a more dynamic view of each investment, which is why it is important to prioritize the one that generates the most financial return for the organization or to correct projects that are running at a deficit.
The big problem is that many companies do not usually do, or do not know how to do, this calculation, raising many doubts as to whether the company’s efforts, business ventures, or projects have achieved a significant and positive return.
In general, the calculation consists of subtracting investments from the gains obtained and then dividing by the amount invested. The result will indicate the efficiency of a given project and the profits for the business.
In the IT area, this calculation has some specific nuances; read on to learn more.
The importance of the ROI calculation for decision making
In a survey of 225 technology managers, 59% stated that ROI influenced the decision to carry out a project in the last 12 months, and 41% used TCO (Total Cost of Ownership) – a projected financial estimate to evaluate direct and indirect costs related to the purchase of any investment – to justify the decision. According to a study, for every 1% invested in IT, a company profits 7% over two years.
Quantifying results in the IT area is also fundamental to determining cost reduction or revenue increase figures within companies. It is necessary to identify the impact and tangible gains that the investment brought to the business.
Also called tangible benefits, palpable gains can include time savings from improved support, increased production and sales volume, and growth in the volume of contacts with the company.
Mapping ROI can be a complex task, since the variables that make up the ROI or TCO calculation are diverse and depend on the intrinsic characteristics of each project or service.
Check out the main services involved in calculating IT ROI:
Server ROI
The use of ROI metrics by industry professionals has become an important piece of the puzzle; however, it is essential to emphasize that there is no ready-made formula to calculate the return on investment in the storage world, as it depends on the needs of each business.
Security ROI
The major differentiator of ROI in security is the unpredictability of potential risks and damages that an attack on a corporate network can cause. Therefore, calculating ROI in security projects is more complex than in other investments.
ERP ROI
The concept of ERP ROI has long been used by companies, but the metrics were often confusing and overvalued. It is important to emphasize that, if applied correctly, the calculation aimed, as in other IT segments, to facilitate the approval of new projects, monitor their implementation, and measure results.
Currently, managers select projects based on the relationship between how much the organization will pay and what benefits will be extracted. From the moment the calculation shows good figures, the value that can be extracted from the new solution follows this evolution. Most companies use one or more financial metrics that can be called ROI. These studies include payback period, acquisition cost, and internal rate of return.
Intangible ROI
In the IT area, there is also what we call intangible ROI, which does not have pre-established metrics. This is when the company or IT department encounters some difficulties.
Among the less concrete factors that can make a difference in the adoption of a project are improved quality, greater speed, and the reliability of services obtained through an IT investment.
There are also indirect benefits that can be measured. Although they are not expressed financially, they must be considered in order to maximize the ROI of an IT investment. Examples of these benefits include: improved communication with software support services, customer satisfaction, and achieving agility in processes, shorter cycles, and improved company operations and performance.
Quantifying results in the IT area is an important component in the equation and in the relationship between the time spent on the project, the objective of meeting deadlines, and the number of months that justify the investment.
Auxiliary metrics in IT processes
Auxiliary metrics are an important factor for calculating ROI—especially intangible ROI—in IT procedures, as they help managers justify investments in the area’s infrastructure based on results. Most organizations use financial metrics to measure ROI. However, as we have seen previously, some IT metrics have a positive impact on the process, yet cannot be simply and directly converted into financial values.
Given this, the most common solution is to convert subjective points into units of time and then into financial values. The success of IT ROI depends on the ability of IT managers to analyze and articulate the qualitative benefits of implemented projects.
It is important to keep in mind that ROI should exceed 100% to make a project worthwhile; however, even in projects where ROI is below this percentage, non-palpable indicators should be decisive factors in the evaluation with the team.
Likewise, it is essential to remember that, although IT ROI may seem more complex to gather and calculate, it guarantees a quick and more accurate financial analysis of the return for the company. With it, it is possible to achieve more significant results and greater control over the projects being developed by the organization.
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