Involving the people who will be accountable for a project's ROI up front in the development of its business case results in much more accurate, complete and credible estimates of benefits and costs. Nothing is more effective at forcing the "fluff" out of the business case for an investment than tying the accountable people's performance appraisals and/or compensation (to the degree appropriate) to the quantifiable success of the project.
To properly establish ROI accountability, first you need to define the value metrics that will be used to measure and continually improve the benefits actually gained from the project (for example, cost per order, revenue per sales rep or retention of customers). The expected improvements in the business metrics are used to calculate the benefits for the business justification. Using the same metrics as the basis for the justification and measurement/improvement of actual results is one of the main advantages of this approach, adding greater credibility to the request for funding.
Accountability for business metrics should lie with the senior manager who owns the business area in which the value is expected to be gained. Therefore, responsibility for increases in revenue and reductions in business costs reside within the business organizations. The CIO or senior IT manager should be accountable for improvements in the cost-effectiveness of delivering an IT service or capability. These IT improvements should be transparent to the business, beyond the reduced bills they receive for the service or capability.
For example, in the case of an enterprise application implementation such as customer relationship management, ERP or business intelligence, a senior business person should be responsible for the expected improvements in revenue and business costs related to areas such as marketing, sales, service and manufacturing. A senior IT manager should be accountable for reducing the cost of delivering the capability by improving the cost-effectiveness of application planning, design, development, operations and support.
There will be multiple value metrics for any given project (however, it's best to limit them to between two and five to maintain focus), with different people potentially being accountable for each one. However, only one person should be accountable for a given metric and its related value targets. If more than one person appears to be accountable, the metric should either be segmented or the roles and responsibilities should be clarified. There may be multiple enablers responsible for implementing individual changes, but only one person should be accountable for the business results represented by each metric.
The IT enabler
It is important to note that IT still plays a key enabling role, even in cases in which a business person is formally accountable for the expected results. In these cases, IT should support the accountable business person during the justification process. IT must also serve as an active part of the team that reviews the results of the business metrics, and develops and implements the action plan to improve them. IT should then be identified as a critical element of the solution when the results are touted.
In all cases, executive-level support is a key requirement. However, gaining this support should not be difficult. Sales, service and manufacturing managers are regularly held accountable for revenue, retention and production levels. IT is now one of the largest capital expenses within corporations, and has reached the level of maturity in which it should be held to the same standards.
Dan Merriman is president of Chapin Consulting Group Inc. He helps corporate users and vendors of technology use business metrics to define, measure and continually improve the business value of their major initiatives. He can be reached at email@example.com or via the company Web site at www.chapinconsulting.com.
This was first published in December 2006