The myth of ROI
By: Tony Freeman
Over the course of installing a Content Management System (CMS), the financial viability of the project will inevitably be raised and will need to be evaluated. Invariably, the question asked most will be "What's the ROI?", however in 99 out of 100 cases, an ROI analysis makes no sense. This is because an ROI analysis is not favorable nor reasonably definable for any revenue-enhancing technology.
An ROI analysis is a financial investment analysis and involves more than dividing the amount of expected revenue gains by the amount invested - the typical explanation for ROI. It also requires: an analysis of tax consequences from depreciation, cost of funds required for the investment, corporate tax rates, investment tax credits, opportunity costs over time, etc. Not only is it virtually impossible for a technologist to calculate a valid ROI, most project-based companies have abandoned them altogether.
An ROI analysis is useful only when measuring cause and effect investments; those where a direct tie exists between cash inputs and realized returns, such as an advertising campaign. With an ROI analysis, a company can determine that a $1 million investment in advertising will generate X new customers and $Y new revenue.
If a cost-justification analysis is needed, use a Cost of Doing Business (CDB) analysis. A CDB works from the premise that to be in a market or offer a product an concurrent investment in supporting infrastructure must likewise be made. This infrastructure need not only be computer systems but includes rent, customer service agents, phones, furniture, and more. These are basics of doing business in today's environment. This is how a cost-justification of a CMS should be made.
Tony Freeman is a Co-Founder and Executive Vice President of DeepBridge Content Solutions, a firm specializing in content-engineering and management.
