Justifying IT Investments to the Board
Posted on June 17th, 2008 by Julie Garland McLellan »Permalink
Corporate boards can (and should!) operate with a primary focus on revenue-generating activities. This is the bread and butter of any corporate operation, and the board’s duty to shareholders means that profit must be top-of-mind.
Unfortunately, at times boards and those with other fields of expertise – say IT or finance or HR – can seem to be speaking in different languages about the initiatives they are pursuing, and failure to map plans and ideas to the board’s priorities can cost an operation valuable time and resources.
Consider IT, for example. How a board considers IT expenditures can vary widely and ultimately impact how widely IT initiatives are deployed, how deeply they are supported, and whether they’re allowed to continue after initial roll-outs.
Oftentimes, boards will approach IT expenditures globally, establishing budgets for the entire enterprise without establishing criteria on how that budget can be spent. Many boards evaluate proposed projects based on the total project cost. Some boards will also consider the credibility of the IT department and past successes at coming in on budget, being installed on deadline, and that the implementation “worked” (defined as, “it did what it was supposed to do”). What these approaches fail to consider is the impact of IT expenditures on profit – and thus, the enterprise as a whole. When boards focus solely on IT implementation checklists, they fail to consider the truly important metrics – whether Product X or Software Y allow users to increase efficiency, improve speed, or compete in new sectors – and the ultimate impact of those IT expenditures on the company’s bottom line.
What boards should really be considering when evaluating IT expenditures is whether the proposed new technologies will allow the business to accomplish goals that it couldn’t before, along with the strategic impact on the company of accomplishing those goals. Factors like keeping up with the competition or avoiding being stuck with a legacy system are non-issues unless they somehow affect P&L statements.
The real concern for boards should be in accurately evaluating how IT will improve the business, how the success of IT initiatives will be evaluated, and what the return on investment will be. Boards should be calculating ROI for all of their decisions. Simply put, if something’s big enough to bring to the board, it’s big enough to justify an ROI calculation.
Information Technology has brought tremendous changes and benefits to corporations throughout the world, and we know that’s a trend that will continue. But to ensure that companies invest smartly in IT, it’s crucial to factor in ROI from the outset.
Tags: corporate boards, IT, ROI
March 15th, 2010 at 7:42 am
Not too sure how I found this blog but glad I did find it. Think I was looking for something else on yahoo. Don’t know I agree 100% with what you say, but have bookmaked and will pop back to read to see if you add any more posts. Good blog
April 8th, 2010 at 5:26 pm
Just what I needed to take the edge off after a stressful day. Great prose that really gets the thought across. Thanks for sharing.
July 13th, 2010 at 6:55 am
Just what I needed to take the edge off after a stressful day. Great prose that really gets the thought across. Thanks for sharing.