A Case for IT' s Non-financial ROI
By Tabrez Khan
Mumbai, Apr 14, 2008

Return on Investment (ROI) has always been a key concern of an enterprise CIO. Technology buying decisions are always taken by CIOs with an eye on the ROI - that a particular system or IT implementation project might yield in the long-term. This is especially true in a scenario, where CFOs have gained increasing clout, and ask for a justification for every new investment that the business heads make.

The ROI generally is how much profit or cost saving is realized, by implementing a certain IT system/software or undertaking an IT project in an enterprise. An ROI calculation is often used along with other approaches, to develop a case for a technology-buying proposal.

Most organizations use one or more financial metrics to calculate ROI, which include:

Payback Period: The amount of time required for the benefits to pay back the cost of the project.

Net Present Value (NPV): The value of future benefits restated in terms of today s money.

Internal Rate of Return (IRR): The benefits restated as an interest rate.

Traditionally, while discussing ROI of IT investments, IT professionals and top management would take into account the financial benefits only. Today, however, with IT becoming a key business enabler, its purview goes far beyond things that are measurable by your routine back of the hand calculation.

The value of network uptime is not calculable, good IT systems potential to keep customers happy also cannot be calculated, but these are benefits that are key to your businesses today.

Measuring non-financial ROI has always been a tricky area for CIOs. Recognizing what to measure and how to measure can be extremely difficult for intangible assets/benefits.
There are some common but key benefits accruing through any large IT project in an enterprise that cannot be tangibly measured.

For instance, the exposure to IT project implementation may help employees gain expertise in certain domains adding to their knowledge base, and eventually to that of the organization. Enhancement in brand value is another potentially intangible benefit. Successful implementation of an IT project with a major vendor can not only help the business perform better technically, but also raise its image in the eyes of customers, suppliers, employees, regulators and even competitors.

Unlike for tangible financial gains, there are no fixed formulae to calculate ROI for intangible gains. But thinking of them and placing them alongside calculable benefits, while making any technology implementation decision, may help enterprises make a more informed choice that ensures long-term gain for enterprises.