What are the most effective ways to measure IT investment ROI?

1 Define your objectives and criteria

Before you start calculating the ROI of your IT investments, you need to define what you want to achieve and how you will measure it. What are the specific problems or opportunities that your IT projects address? How do they support your overall business strategy and vision? What are the expected outcomes and benefits for your customers, employees, and partners? How will you quantify and compare the costs and benefits of different IT options? By answering these questions, you can establish clear and realistic objectives and criteria for your IT investment decisions.

2 Use a balanced scorecard approach

A balanced scorecard is a framework that helps you measure and manage the performance of your IT investments from four perspectives: financial, customer, internal, and learning and growth. By using a balanced scorecard, you can capture the value of your IT projects beyond the traditional financial indicators, such as revenue, profit, and cash flow. You can also track how your IT investments affect your customer satisfaction, loyalty, and retention; your internal processes, quality, and efficiency; and your organizational learning, innovation, and growth. A balanced scorecard can help you align your IT strategy with your business strategy, communicate your IT goals and results, and identify areas for improvement.

3 Apply relevant and consistent metrics

To measure the ROI of your IT investments, you need to apply metrics that reflect your objectives and criteria. These metrics may be financial, such as net present value (NPV), internal rate of return (IRR), payback period, return on investment (ROI), and total cost of ownership (TCO). Strategic metrics, such as market share, customer acquisition, retention, and lifetime value, brand awareness, and reputation are also important to consider. Operational metrics, such as productivity, quality, cycle time, availability, reliability, and security should also be taken into account. When selecting relevant metrics for your IT projects, make sure they are SMART: specific, measurable, achievable, relevant, and time-bound. It's also important to apply them consistently across your portfolio.

4 Monitor and evaluate your results

Once you have implemented your IT projects and applied your metrics, you need to monitor and evaluate your results regularly. You should compare your actual performance with your expected performance, and analyze the gaps and variances. You should also consider the external and internal factors that may affect your IT investment outcomes, such as market changes, customer feedback, competitor actions, and organizational culture. By monitoring and evaluating your results, you can assess the effectiveness and efficiency of your IT investments, and identify the best practices and lessons learned.

5 Adjust and improve your IT strategy

Based on your monitoring and evaluation results, you may need to adjust and improve your IT strategy accordingly. You may find that some of your IT investments are underperforming, overperforming, or no longer relevant for your business goals. You may also discover new opportunities or challenges that require new or modified IT solutions. By adjusting and improving your IT strategy, you can optimize your IT investment ROI, and ensure that your IT projects deliver value for your organization and stakeholders.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?