Weighing the value

01 Jul 10

One of the key challenges for businesses is valuing their IT. I don’t mean an accounting value – capital cost less depreciation is straightforward enough. It’s the other sort of value – business value – that is more problematic to assess.
Many businesses fail to recognise that IT makes a major contribution to the effective operation of their company. Often it takes an IT disaster when systems aren’t available, before the significance of the IT contribution becomes apparent. Unfortunately, these are typically emotional occurrences, and rational thought is fully consumed by the need to recover the business.
All too often, IT is regarded as an expense. The people who work on it are technicians, and much of the time any expenses incurred are seen as a distraction from the business’s core operations. IT is an overhead, and it’s one that many businesses resent. In the list of priorities, IT expenditure doesn’t rate.
It’s a point of view that I can relate to – the perceptions of IT is that it’s a ‘hungry element’ and everything costs more and takes longer than you were led to believe. The technology ‘lifetimes’ are incredibly short, and it seems excessively fragile.
But these are not fair perceptions. Businesses must overcome these prejudices and consider the value that IT systems offer. How many other parts of the business operate day in, and day out, 24 hours a day, 7 days a week? Those expensive servers never get turned off; you can always log in, grab a file, check the accounts, and send and receive email even to your mobile phone, from anywhere in the world, at any time.
The argument might go that the phone system is like the IT, but unlike a phone system that really only does one task, IT systems do so much more. Not only that, but they combine solutions from many vendors, making each IT system unique. Any two businesses, even if they do more or less the same thing, may have very different IT systems running.
While this adds to the overall complexity, is it fair to say that IT projects always cost more and take longer? Clearly the answer is, in fact, no. I’ve been involved in hundreds of IT projects that went just fine. Of course, these types of projects don’t tend to make the news headlines – it’s not much of a story when everything goes well – but there are numerous business awards for amazing IT systems and projects. Awards that prove that IT implementations can be extremely successful and can boost business value.
Likewise, the challenges of running to time and budget are universal. How many building projects go well? For some reason, we tolerate complexity in construction but not in IT. Maybe it’s because construction sites are more visible. Or maybe it’s because IT projects are necessary and unglamorous.
As businesses, we need to learn to communicate the value of the systems we scope, design, build and maintain. My contention is that there are only three reasons to implement new IT projects: increased reliability, enhanced capability, or improved capacity.
Some projects may well achieve more than one, and possibly all three. For example, we don’t replace old IT systems based purely on their age; we do it because we seek to improve reliability, by using newer items with current warranty coverage and software support. Often that will also bring an improvement in the functionality. Likewise, we may undertake a project to increase the system's capacity; for example, replacing smaller hard disks with larger ones, providing faster drives with a fresh warranty in doing so.
Alternatively, implementing mobile email or business intelligence adds capability to a business, allowing it to be more nimble and respond better to customer demands.
The key to assessing business value is to properly understand the services that your IT system offers, and to fully appreciate the financial impact of that increased capacity, improved reliability or enhanced capability on your business’s bottom line.
Larger businesses understand this, but our SME sector does not. Until SMEs start thinking about the IT system as a strategic asset that drives profitability, then these businesses will continue to flounder. Too many of them would rather invest in the European car in the carpark, than in the true engine room of the business. While I understand the SME business owner's desire to seek a reward, investing in your IT department is a far better long-term value generator than a stylish car in the company carpark.

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