Overview
Many times ITS customers don't understand the true value of Infomation Technology (IT). It is up to ITS to clearly state what business value (time and money) IT solutions address.
Three common business values are:
Sometimes revenue generation is considered a business value, but usually an indirect one. Identifying the appropriate metric is vital to communicate the actual value of IT to campus.
Example ITS implemented a new fund raising system to increase the efficiency of fundraising staff and improve the service to donors which will (hopefully) lead to increased revenue (donations). See the service improvement metric below.
Cost Savings
- Cost Avoidance
- We spent X money to avoid spending Y over Z years.
- Cost avoidance is the simplest and most common metric encountered in IT. A situation exists, be it increased support costs over time or a lease expiring, that is going to dramatically increase the cost of maintaining the IT infrastructure. The business needed to avoid this cost by spending some amount of money up front.
- Cost Reduction
- We spent X to get F functionality in order to no longer spend Y on this set of activities.
- Cost reduction is a more complex metric. You need to be able to prove that this new function will actually generate the desired outcome.
- Increased Efficiency
- We spent X to get F functionality in order to save Y effort on this set of activities.
- Increased efficiency is a time savings or process improvement metric. You need to be able to prove that this new function will actually generate the desired outcome. Also, time savings should never be directly related to cost reduction, unless it can be shown the staff performing the tasks have been reassigned and/or the positions eliminated.
More Information See Does Time Equal Money?
Risk Management
We spent X to prevent Y from occurring.
Risk management is important in high security matters.
Things to identify:
- what Y is
- Y's cost
- Y's probability of occurrence
- an acceptable level of risk
- avoidance strategies
- cost of the avoidance strategy
Often, as the U-M is a fairly risk averse institution, the difficulty of measuring intangible outcomes such as the impact on the university's reputation is well understood and therefore accepted at face value (within reason).
Service Improvement
We spent X to get F functionality to create the opportunity for Y outcome.
Prove that Y outcome will occur and it was worth the investment of X. These metrics generally align well with strategic goals. Unfortunately, they are also very hard to articulate because IT rarely has direct measurable impact on business outcomes. Service improvement proposals most often originate from customer units, which of course adds to the complexity because these parts of the organization often do not have the IT acumen to perform a rigorous cost/benefit analysis.
Increased Revenue
We spent X to get F functionality in order to generate Y revenue from this set of activities.
Increased revenue, similar to cost reduction, but more difficult to prove. You need to be able to demonstrate and prove that this new function will actually generate the desired outcome above and beyond what was already generated via the existing business process.
Sources
Kalvar, Shannon T., How to make the case for new hardware purchases, techrepublic.com