The immeasurability problem of it investment

Non-IT executives agree most strongly that the role of information technology in their organization is to reduce costs.

Most agree that IT supports the needs of the company well, is an important part of the business and is aligned to company strategy. Less agreement can be found, however, for the statement that information technology represents means to increase sales and/or to achieve competitive advantage.

There is a low level of agreement among non-IT executives that IT is a core competency of their organization. Surprisingly, most IT executives agree that information technology is a core competency of their company.

This increased conservatism is illustrated in the shortening of expected pay-back periods for information technology projects. Two-thirds of GMA-member companies (Grocery Manufacturers of America) expect IT projects to recoup their costs in one to two years — up from 43 percent last year. The numbers of those expecting a longer pay back of two to five years [1].

The IT department typically has a large and rapidly growing budget. In addition, most IT departments have had at least a few high-profile failures, causing business executives to be somewhat suspicious of IT’s value.

The first problem is that results have no meaning when compared to other investments. The second problem is that, to date, there is no empirical evidence that this method improves decisions.

The “immeasurability” problem is caused by three basic types of misunderstanding about measurement problems:
the object of measurement & the concept of measurement is not understood.
the methods of measurement (proven techniques used by science) generally are not well understood [2].

The aim is to define the IT investment effectiveness measuring problem field and to analyze business-performance management optimization methods.
Business-performance management, though defined in various ways, is generally considered a set of management and analytic processes – supported by technology – that addresses financial and operational activities. Businesses set strategic goals and then measure and manage performance against those goals. Core processes include strategic, financial, and operational planning; consolidation and reporting; modeling and analysis; metrics such as scorecards and Six Sigma; and monitoring of key performance indicators linked to organizational strategy using dashboards.

The Balanced Scorecard methodology stresses that objectives and measures from multiple perspectives should all be considered. The classic perspectives for for-profit businesses are Financial, Customer, Internal Operations/Processes, and Learning and Growth (which focuses on human capital, technology and organizational culture — the intangible assets that create value). By looking carefully at all four perspectives, organizations can focus on both the causal drivers of performance and the outcomes [3].
In order to effectively make informed business decisions, individuals must have access to relevant information. KPIs and metrics aid individuals with assessing performance, identifying activities or events that are of concern and focusing resources on those activities that require attention.

To ensure that business-performance management works, companies evaluate their efforts fairly frequently. As a result of these and other efforts, such as standards, companies should achieve improvements not only in performance, but in their ability to measure their progress.

References:
1. Computer Sciences Corporation. 2003 Information Technology Investment Study. // http://www.gmaonline.org/publications/docs/03ITInvestmentStudy.pdf
2. Hubbard Douglas. Everything Is Measurable // CIO. May, 2007. – http://www.cio.com/article/print/112101.
3. Barberg Bill. Balanced Scorecard Best Practices: Understanding Leading Measures // ITNetwork365. – http://www.businessintelligence.com/.