RSM Resources

Information-technology (IT) projects are often a major source of contention in midsized organizations. Why? Because they are inherently risky, and many fail to deliver on stated business objectives.

Consider the sad record of IT projects, according to The Alinean ROI Report, a monthly newsletter:

• Two-thirds run over-budget or over-schedule.
• One-third get canceled.
• More than half fail to deliver on expected returns.

Asa result, pressure is high for IT executives to deliver rock-solid strategies on smaller budgets and to maximize the rewards from every investment. Exacerbating the situation, many midsized companies lack the resources for all the projects in their pipelines. After funding operations, maintenance, upgrades and migrations, IT executives typically have a meager 10 percent of their IT budget to put toward innovation.

In this climate, management typically asks — or requires — IT project teams to establish a rigorous business case to justify proposed investment. A key ingredient in the business case is a return-on-investment (ROI) analysis.

The pros and cons of ROI analysis

ROI analysis forces the IT project team to evaluate a proposal in terms of costs, benefits, risks and returns. In addition, the team will need to demonstrate how the investment complements the organization’s goals and processes. An ROI analysis is generally written in terms executive management understands, so it can be a valuable tool to help IT gain management support.

Growing demand to justify IT investments has spawned widespread interest in ROI analysis. However, best practices for assessing ROI remain elusive. According to a 2002 survey by CIO Insight,70 percent of chief information officers said their metrics don’t fully capture the value of IT, and nearly half lacked confidence in their ability to accurately calculate ROI.

One of the biggest challenges of performing an ROI analysis for an IT project is quantifying the business benefits in financial terms such as cost savings and revenue increases. That’s because many benefits — improved employee morale, enhanced customer service, increased competitive advantage and so on — are intangible and hard to measure. Additionally,some IT investments take time to mature. For example, the financial payback from a massive infrastructure build-out could lag years behind the investment.

How to launch a successful IT project

ROI analysis is just one factor many companies consider when planning an IT initiative. Experts suggest additional components of effective planning to help projects stay on track and deliver on objectives.

Define your needs. The first step in initiating an IT project is to conduct a needs analysis. Begin by asking:

• Why do you need the new technology?
• What will the new technology help you do?
• How will the project affect productivity, operational costs and efficiency?
• How does the new technology fit the overall strategic goals of your business?

As part of the needs analysis, don’t be afraid to look at, and change, if necessary, your current processes. If you can’t integrate them with the proposed new technology, your initiative will fail. For example, if your company’s customer relationship management (CRM) strategy has flaws, or if your customer-facing processes are dysfunctional,implementing CRM technologies won’t help your business.

Define the project.Create a project charter to clearly define the project. A charter typically includes an executive summary, business needs statement, project objectives, impact assessment, success measurements, scope statement, risk assessment, time constraints, and a list of stakeholders and executive sponsors. The project charter can help build consensus on project goals.

Plan the project. While the project charter defines what the project is and why it exists, the project plan defines the how, when, where and who of the initiative. It’s a living document that evolves throughout the project. Project plans usually restate the charter and describe how the project manager proposes to coordinate the work, human resources, scope change, issues, risks, procurement, quality, and communication and training.

Estimate the work. Before starting a project,you also need to estimate how long it will take to accomplish objectives. Take each deliverable and break it down to determine the tasks and subtasks needed to produce each one. This will help you plan all the necessary work, estimate the time needed, and assign appropriate resources, internal and external.

Create an interdisciplinary team. Representatives from each group of potential users should have the opportunity to articulate their requirements and contribute project specifications. Involve them on the front end to give them a sense of ownership and improve the odds of positive results. It is crucial to designate one person to lead the technology team and coordinate the whole process. That person need not be someone in a management position but should possess the leadership capabilities to assume true decision-making authority.

Design with flexibility in mind. No matter how exhaustive your initial planning, unexpected needs and priorities will arise, so build flexibility into your schedule, budget and plan. Buy, beg and borrow as much time as possible to build a rock-solid design before implementation. Two ways to build flexibility into your project include conducting a pilot test and using a phased deployment schedule — both enable you to adjust course, as needed, if issues arise.

Limit changes. Once the building phase begins, requests to expand the original specifications typically roll in. It is important to curb such "scope creep" and limit the number of changes to ensure the project is not compromised. Changes, unless they are minute, always affect budget, quality, time and scope.

Work with, not for, your consulting team. If you hire a consulting firm to help with all or part of your IT project, be sure to communicate your needs and business objectives upfront. Make sure your consultants know your budget so they do not recommend a solution that you can’t afford or otherwise support.

Evaluate your success. Decide beforehand what success indicators you will look for, and build evaluation checkpoints into your timeline. Measure for, and communicate, success throughout project implementation and after project completion.

Executive and IT leaders should review successes, failures and lessons learned after each IT project. Careful review can lead to more effective project selection and project management in the future.