Demonstrating the business value of IT is challenging CIO’s, CEO’s, CFO’s and other managers. The problem is not that IT creates no value; it is just how do I measure and communicate that value. Current practices in IT measurement and metrics do not help as they concentrate on reporting how IT spends money (projects on time on budget) rather than the value created from those expenditures.
IT metrics concentrate on reporting IT value in a point in time. This is a fundamental weakness in current IT metrics approaches. Point in time reporting concentrates IT on financial and status measures that fail to capture the changes in performance and productivity created by information technology.
The value of IT at any one point in time is essentially zero at best and often negative. Take the IT assets on you balance sheet and mark them to the market to see their value. Turn your attention to the IT investment portfolio and you get a similar story as expenditures on active projects that have not completed outweigh the value of completed projects in a given year.
IT creates little value at any one particular point in time. IT metrics that concentrate on point in time measures naturally have trouble communicating value. Instead they focus on demonstrating that IT is not wasting money and not disrupting the business. That is the essence behind reporting project status, systems availability and budget based statistics in IT scorecards.
Enterprises see the value of IT over time.
IT value comes from a sustained change in business performance rather than a single transformation. You cannot see this performance via point in time measures. You only see this impact by comparing performance in the current period with past performance. This enables you to see the impact of new business capabilities on business performance.
A control chart provides a way to see the changes in business performance over time. Highlighting the release of new capabilities on a control chart gives executives the ability to see the impact of IT and other changes on performance over time. The figure below illustrates this type of control chart.
A control chart illustrates the relationship between business performance and new IT based capabilities. Ideally new capabilities would establish a new process performance profile, shown as the new upper/lower limits in the figure above. The point here is that I can see the value of IT because I can see the change in performance only over time.
A caution when using this approach.
There is a fallacy of “false precision” where business and finance leaders will say that IT cannot take all the credit for these improvements. They are right. No one person can take credit for performance improvement because it’s the result of coordinated and collaborative changes not any singe change. The same goes for when performance deteriorates and falls outside the lower control limit. The point here is that you want to demonstrate that business performance improves when IT creates new capability over time.
You may want consider a collection of other comments about management pitfalls in this other post Signs of Weak Management
There is more to showing the value of IT than we can discuss in this single post. Demonstrating the business value of IT starts with recognizing and reporting on the source of IT value which is changes in business performance over time not IT performance at any one particular point in time.