ITIL & ROI

I’m often asked “What ROI will I see from implementing an ITIL based framework, and how long will it take me to realize those benefits?”. In other words “will this project really be worth the pain?”. Calculating ROI for ITIL based implementations is a challenge, however we do know that the benefits exist. Given that each implementation is (and must be) unique we can’t simply use the benefits recorded by other organizations and scale up or down.

Benefits realization is dependent on a diverse range of factors including: scale of the implementation; processes to be included; maturity of current processes; structural changes required; level of investment; timescales and many others. Before calculating benefits realized organizations must 1st have visibility on their current costs: the real cost of downtime; the cost of a problem; the cost of a change; etc. And this means accurate and holistic budgeting and accounting must already exist.

Let’s not forget the non-financial benefits: the VOI (value on Investment). These include customer satisfaction, ethical and moral obligations, maintenance of market position etc. Strong Financial management and accounting practices will allow us to demonstrate ROI, but to calculate VOI we need to be in tune with our organization. This means good BRM and conducting surveys. An efficient and effective implementation of an ITIL based framework will improve relationships between IT and the organization as a whole, but how do you articulate and demonstrate this improvement? The answer to that is unique in all organizations, but can’t be ignored as it is of just as much significance as financial ROI.

So what are the benefits of an ITIL based service management framework?

Well Gartner states that clients who have “made a serious commitment to improving their maturity by leveraging ITIL during a two to three-year period” have seen an 80% reduction in IT support costs over 5 years; a 50–75% reduction in unplanned work for critical services; 10–25% in labor productivity benefits; and a 20% improvement in customer satisfaction surveys.” Other benefits are documented by Axelos and Gartner:?

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All of the above looks amazing, but they don’t articulate anything into tangible facts, figures, and money. For example, in order to calculate the financial impact of downtime, the cost of idle users in the business should be?included with the cost of IT service provider time spent restoring service. Benefits calculations should be done on an individual process by process basis which than then be consolidated to demonstrate overall ROI.?

The following table is a generic example of what could be calculated to demonstrate ROI for the Incident and Change Management processes. This could be undertaken for any process to enable ROI / VOI calculation:?

So let’s put some actual figures on the above to better demonstrate. Consulting organization Plexent have produced an ROI example demonstrating the calculations used in an incident management implementation:?

Assumptions

? Incidents per month = 5,000

? Average cost per case = $40

? Average cost of escalated case = $150

? Average burdened cost of support personnel = $8,167

? Average time in first contact (minutes) = 12

? Average time in escalated incident (minutes) = 18

? First call resolution = 40%

? IT headcount = 100?

Estimated Incident Management ROI

In a Gartner case study a sample group of organisations companies implementing an ITIL based framework reported these results:?

? Incident management: Improved initial response rate by 20%

? Problem management: Decreased the number of relatively severe problems that required between one and five eight-hour days for resolution by about 4% per year.

? Availability management: Decreased the number of major system failures from 6 to 2 in one year.

? Release & Deployment management: Decreased human error in release management by 20% in one year.

? Capacity management: Increased the number of managed servers per person by a factor of ten.

? Service management: Cut costs by 30% after a three-year effort to integrate and automate processes.?

Other ROI statements are also widely available:

? The State of North Carolina improved the ability to resolve incidents within the target time frame by 32%, service requests by 20% in less than 3 months.

? The State of Illinois saved over $130 million annually.

? The USPS realized a 50% reduction in incident resolution time and a 30% shorter time to implement new?

? Purdue University cut second-level support calls by 50%.

? Proctor & Gamble realized a 6-8% cut in operating expenses and reduced help desk calls by 10%; a saving of over $500 million over 5 years.

? Visa saw a reduction in the time it takes to resolve incidents by as much as 75%.

? Capital One reduced system crashes and software distribution errors by 30% and “business-critical” incidents by 92%.?

Final Thoughts

The entire purpose of implementing an ITIL based framework is to deliver value to the organization as a whole by remaining aligned to their needs and strategies. What does that mean in terms of calculating ROI or VOI? Well we have to start with simple question of whether or not we really need to articulate the ROI. And then we factor in our current maturity with Financial Management and whether it will allow us to obtain a baseline of our existing costs. In order to demonstrate improvement we have to know where we are now.?

An ITIL based implementation will cost money to undertake and we must not forget the cost of managing cultural change and resistance combined with the cost of training and marketing.

Calculating the ROI or VIO of an ITIL based implementation can be a challenge. Case studies can help, however each implementation is unique and how another organization has completed the calculation (or even the implementation) could be irrelevant.?

Comprehensive budgeting and accounting is required to articulate and demonstrate ROI. This includes structured accounting and cost models, depreciation models, apportionment strategies etc. The overarching strategies of these accounting practices may well be set by the organization as a whole.

So how do I answer that all important question about ROI? Well to put it simply these is no definite answer, but if implementation is successful, then the ROI and VOI will be achieved.

Jo Peacock is a visionary leader in IT governance and organizational change, empowering teams through strategic innovation and best-practice guidance.

Jo Peacock

919 308 0634

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