As corporate budgets are squeezed, the "business case" for investing in an IT project has assumed ever greater importance for companies seeking to maximise the return on their investment. Yet a new survey* by PA Consulting Group suggests confidence in the business case is low.
In the survey of 175 organisations worldwide, only 35 per cent of respondents strongly agreed that their organisation developed clear business cases, and only 21 per cent agreed it effectively managed the risk associated with the business change.
The finding is surprising because many companies are insisting on a rigorous business case. Worryingly, too, there seems to have been little progress made since PA surveyed a similar population three years ago: then, just 40 per cent of correspondents said they had confidence in their organisation's value justifications in IT-related business cases.
David Elton, lead author of the report and a member of the management group in PA's IT strategy practice, says the lack of confidence in business cases may be due partly to the disappointing outcomes of past IT projects. Another factor, he suggests, is the obsession many companies have with the numbers in the financial projections, rather than considering how the project will change the business and the way it works.
The report says gaining value from IT in the future is likely to remain hit or miss, unless business cases are clear about where value will come from, how it will be realised, and who will be responsible for delivering it.
In looking at the commonly-used ways to measure the value from IT, however, the report has further food for thought for CIOs. The most common measures were return on investment and reduced costs. Few correspondents claimed to use "contribution to shareholder value," perhaps because it is too hard.
Yet the report suggests that this measure seems to work better. Roughly half the respondents using ROI or cost measures reported improved value from IT, but this increased to 90 per cent for respondents whose organisations use shareholder value measures. "Companies that focus on shareholder value seem to have a better understanding of where the value from IT comes from," says Mr Elton.
PA says organisations should spend more time tailoring the measurement regime for each project, and devising measures that are meaningful to the relevant stakeholders. This tends to link the measurement process more closely to other business objectives.
The report also highlights an "upside-down" approach to sourcing IT. At least parts of the IT infrastructure are becoming commoditised, suggesting that best value would be obtained through wide competition such as internet-based bids, yet the most favoured route is preferred supplier.
In contrast, for complex projects involving business applications, the most favoured route for procurement is competition through invitation to tender. Here, it helps to have a real relationship of trust between supplier and customers, says Mr Elton. "But that doesn't seem to be flavour of the month," he says. "If you squeeze the supply side so hard that the pips squeak, you lose any sense of partnership in the relationship."
* Getting out of the cost box. PA Consulting Group. For a copy of the report go to www.paconsulting.com/itsurvey or contact kerry.harris@paconsulting.com.
