it roi: 3 metrics

How do you know whether a tech investment is worth making? There are 3 items to consider in making this decision:

  1. Net present value
  2. Internal rate of return
  3. Time to payback 
These are all measurement methods you must understand. Many IT leaders lack the financial sophistication to precisely present the information CFOs and CEOs seek. Oftentimes financial metrics won't work for most IT projects. A challenge to say the least. Technology initiatives don't have a direct measurable effect on the bottom line. Examples are:

  • Social Media
  • CRM
  • Knowledge management
These have financial benefits, but they are indirect. Projecting ROI of these items is frustrating but IT projects need the support of ROI reasoning.

Financial skills are considered a plus. Finance needs to be at the core of IT strategy. Establish project management to do cost-benefit analyses and other ROI calculations. Create templates for ROI calculations. Cost-benefit analysis compares a project cost to its anticipated financial benefits. The 3 core metrics are used in this analysis.They were mentioned previously and here are definitions.

Time to payback measures how long a project will take to pay for itself.

Internal rate of return compares a project's anticipated benefits with what the company could have earned on the funds used by simply investing them.

Net present value determines how many future dollars are needed for an investment to pay for itself in today's dollars.

These 3 metrics are useful and need to be integrated. Be genuine. Keep in mind the importance of ROI when projects don't go according to plan. Think through the possibilities. Know your level of spending. Prepare ROI so common financial pitfalls can be avoided. Use your available data and perform the analysis. This suggests if your financial resources give a project the go-ahead.

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