TechnologyRIO models are the key to success

RIO models are the key to success

As the IT sector limps into July and August it's worth offering the industry some advice. Create return on investment models that make sense to the businesses you're struggling to sell into.

Having spent the last six talking to user organisations, it has become apparent that few companies are able to articulate an ROI story that justifies their IT investments. This will surprise finance chiefs who signed off large projects but it seems that once the back of fag packet appraisal is complete, the ‘paperwork’ gets tossed into the dustbin. There are several reasons for this.

First, IT project leaders don’t know what ROI means. They understand total cost of ownership (TCO). But TCO and ROI are not the same thing.

This is because ROI takes a business perspective while TCO is usually based on IT-related costs.

Second, where an ROI model is constructed it is not always easy to track the results because many of the models one sees are created by industry analysts who have a vested interest in project success but no qualification for completing financial models.

Third, the assumptions under which IT projects have been justified rarely demonstrate proper regard for fiscal probity. The tech boom of the late 1990s was fuelled by distress purchases of the kind generated by the ‘me-too’ syndrome. Today, the situation is very different, but even so, most IT vendors are poorly prepared to meet the challenge. Buyers are demanding solid ROI models that can be tracked yet all too frequently they are confronted by sales staff that have little concept of the topic. In addition, many sales teams are poorly disciplined. Getting them to follow up leads is hard enough so getting them to run an ROI calculator stands about as much chance as my finding gold bars outside Camden station.

However, a few vendors are attempting to bring a sense of understanding to the table. These are the ones that have created industry specific best practice models with real science behind them, and are the ones to watch.

  • Dennis Howlett, freelance writer and co-founder of Webster Buchanan.

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