The ROI Question

My copy editor cringes just about every time she sees the acronym ROI in a technology publication. It drives her nuts that the press often misrepresents the true meaning of return on investment. In fact, you're probably guilty of using the term ROI inappropriately (hint: if you aren't familiar with the concepts of time value of money and net present value, the metric you've been presenting to clients is not really ROI). But, the misuse of ROI is not the real concern for the channel. In fact, sometimes ROI isn't the most appropriate way to determine a technology project's worthiness. The real concern is whether VARs and integrators are adequately assessing a return for their clients, whether through ROI projections, cost/benefit analyses, or some other measure.

With tight budgets and reduced spending, few IT projects are getting off the ground without financial proof of value. Lesley Taufer, president and CEO of VAR Boulder Corporation, says customers are demanding these types of metrics. Her networking and storage business has fielded requests for return analyses since the economy started to sour in 2001. Furthermore, a recent Gartner study found the sales cycle for an IT project could be reduced by 30% to 40% by providing cost justification. It's pretty apparent your customers want to see what they'll get in return for the money invested in technology. So, how are you going to answer if you don't have a finance department churning out ROI calculations?

Measuring Technology's Benefits
Your customers like to hear they'll increase productivity and reduce costs by implementing technology. But it's easier to sell them on those benefits if you can quantify them. This means you're going to have to spend some time assessing the "as is" and "to be" processes of your customers. You'll have to answer questions like: How long does it take to complete task XYZ with the current system? What does it currently cost in terms of labor? How long would it take to complete task XYZ if they were using new technology? How much then would it cost in terms of labor? Clearly, if you can assign numerical values to your projections, it's easier for the customer to "see" the benefits.

There are also "soft" benefits to technology implementations that are difficult to measure, such as improved customer service. But focusing on these intangibles won't win over many customers.

Set On Projecting ROI?
If you want to offer customers a true ROI evaluation, there are numerous ROI calculators available online (e.g. the Web sites of Sun and Computer Associates, Inc.). You can also purchase ROI tools. Orlando, FL vendor Alinean, for example, offers ValueIT 2.0, an ROI and IT budget analysis tool. Alinean President and CEO Tom Pisello developed the tool while he was consulting on projects for vendors, and consulting and systems integration companies. ValueIT contains dozens of templates for assessing the value of IT investments.

If you know what goes into an ROI calculation and you have the time, you can use a Microsoft Excel spreadsheet to get the job done. But remember, ROI alone won't close the deal. The best financial documentation in the world won't compensate for a meek salesman or a weak product. It's just one of the many tools that VARs and integrators can use to win customers.