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How to Measure IT's Business Value

By Doug Bartholomew  |  Posted 2007-11-28 Print this article Print

New research reveals four principles for ensuring businesses have a clear understanding of what their getting for their technology investments.

For as long as there has been computers, servers and software, CIOs and IT managers have struggled to quantify the value they add to their businesses. In "Business Value: The Future Yardstick of IT Performance," The Hackett Group outlined four basic principles for companies to follow when calculating the business value of IT investments over time.

1) Value conversion. IT should reduce wasted effort in the conversion of inputs-or IT resources-into business outputs (ultimately, shareholder value). Hackett's research found that the more strategic the role of IT in an organization, the greater the delivered business value. "The objective is to maximize that conversion ratio," says Erik Dorr, senior business advisor at Hackett, a global firm based in Atlanta.

2) Collaborative process. The organization must have a cross-functional integration among business, finance and IT. This integration includes both the capabilities needed to achieve IT business value, as well as the metrics used to assess that value. "There must be an effective communication process between IT and business and financial management," Dorr says.

3) Process-driven approach. IT BVM requires a structure that establishes clear accountabilities and a framework for continuous improvement using best practices. "Many organizations have implemented ITIL as a means to manage their IT processes, and you need a similar structured approach to manage the entire lifecycle of IT investment," Dorr adds.

4) Dedicated resources and executive sponsorship. "This needs to be done in the context of a corporate-wide initiative," explains Dorr. In other words, the leadership of a senior-level executive is critical for an IT business value management program to succeed.

Hackett's research indicates that the need to quantify the value of IT's contribution to the enterprise is becoming more key to CIOs who aspire to a higher executive role. "We believe that over the next five years, CIOs will either evolve into fully accepted 'business partners' at the leadership team level, or senior business leadership will make strategic IT decisions and delegate execution to a de facto 'COO of IT'," the report states.

"We see a drastic increase in the numbers of CIOs who are part of the executive team" since 2002, says Dorr.

Hackett (www.thehackettgroup.com) is conducting an open performance study aimed at measuring IT business value management's relationship to company performance. The goal of the study is to assess how companies stack up with their peers and against world-class organizations.

Doug Bartholomew is a career journalist who has covered information technology for more than 15 years. A former senior editor at IndustryWeek and InformationWeek, his freelance features have appeared in New York magazine and the Los Angeles Times Magazine. He has a B.S. in Journalism from Northwestern University.
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