From spreadsheets to advanced portfolio tools, users seek means to track value from IT investments
By Roberto Michel
The evaluation of proposed IT projects at EFW is rigorous—says Harry Butler, support center manager for the Fort Worth, Texas-based supplier of high-tech products to the military—but so is the assessment of every significant would-be expenditure. Whether it's manufacturing seeking a new piece of machinery, or IT requesting new servers, proposals must be placed in a benefits-analysis spreadsheet and pass muster with a management committee.
Butler says the biggest IT projects are evaluated every fall, while other significant requests throughout the year are reviewed by a business strategy committee twice a month. Both the fall expenditures and the more routine requests to a business strategy committee make use of the same Excel spreadsheet that calculates return-on-investment (ROI). "Everyone can make their ROI look good if we all use different ROI models," says Butler. "This puts us all on common footing."
Just how rigorous IT organizations should be in tracking ROI on IT spending, however, may depend on the size and complexity of the organization. Processes that make sense for a midsize manufacturer like EFW, with international operations and multiple business units, might not fit a small manufacturer. And even some large companies use Excel and informal committees to guide decisions, rather than vendor-supplied IT portfolio management systems and rigid governance procedures. But most experts agree that IT leaders are under increasing pressure to measure the value of IT.
Gary Curtis, a managing partner with New York-based consulting firm Accenture's Strategic IT Effectiveness Practice, says Accenture found that several approaches promote a return on IT spend. Foremost, says Curtis, is an IT governance process, though various tools—from spreadsheets to sophisticated IT portfolio management systems—also help. "At the end of the day, you're trying to get more value from your IT dollar, and trying to make IT more effective," says Curtis.
At big companies, IT governance often involves formal steering committees and the use of portfolio management solutions that track IT resource allocations, weigh potential projects, and manage ongoing ones. At smaller companies, IT governance might be done more informally, though ideally would still track results.
Take Diemolding Corp., a Syracuse, N.Y.-based automotive industry supplier. The company installed an ERP system from Exact Software, then known as Macola, in the early 1990s, and has tracked results for the system through several upgrades. More recently, it began using e-Synergy—another package from Exact with workflow and document management capabilities—to streamline a broad range of administrative processes, says Paul Orr, Diemolding's IT director. But with only two main sites and a three-person IT department, the e-Synergy rollout evolved from a small pilot in which the IT staff used the package to track IT assets, rather than some grand deployment scheme with detailed ROI projections.
After the pilot's success, says Orr, use of the package spread to quoting and quality management. "We baby-stepped into it," says Orr. "We don't make major projects out of everything. We roll up our sleeves, and we prototype the likely uses."
Efficient IT
The experiences of EFW and Diemolding show how companies are putting processes in place to track ROI from IT. While neither company invested in packaged software for this task, they are following best practices such as letting the line of business shape projects, and trying to focus more of the IT budget on new capabilities.
At EFW, an IT expenditure under assessment is a patch management application from CA. EFW already uses CA's Unicenter systems management suite for monitoring IT assets, but lacks a tool capable of applying patches to all systems. "That means we need bodies to go out and check the information," says Butler.
The time saved in manually checking for patches will be calculated and placed into EFW's analysis spreadsheet, says Butler, as part of final approval for CA's Unicenter Patch Management solution. So far, says Butler, the Unicenter applications have a good track record for automating many of the IT tasks that would otherwise have to be manually carried out.
"The CA tools basically allow us to decrease our day-to-day IT operations costs, while still maintaining quality of service," says Butler. Another big benefit of the CA tools, says Butler, is that by making IT operations more efficient, "it frees up money that can be applied to growing the business."
Accenture's Curtis says moving IT dollars from maintaining systems to discretionary spending on new capabilities is key to getting more value from IT. Research indicates companies that outperformed their industry competitors in profit-margin growth invest significantly more in discretionary IT projects.
Accenture also found that those companies that spend about 40 percent of the IT budget on new capabilities had better profit-margin growth versus industry peers, but if that percentage dropped to 30 percent, performance suffered. The research was from 2002, but Curtis says it remains a vital metric. "You start to unleash returns back to the business when you make the discretionary portion bigger, and you start to throttle back returns as you make it smaller," he says.
IT portfolio management systems typically have value-analysis modules, and can in some instances incorporate ROI data from line-of-business applications. Curtis says portfolio packages are useful in "process support" for IT governance, but adds that having a strong governance process is more important that running out and buying a portfolio solution.
EFW's spreadsheet-based model tracks the cost of systems and projects, and multiple benefits such as inventory or cycle-time reductions. It also looks heavily at projections of hours by automating manual tasks. Another important weighting, however, is whether a new system is needed to support a regulatory or customer compliance concern. "ROI is important, but there are some projects you need to undertake just to continue in the line of business you are in," says Butler.
Spreadsheets and a portal might be sufficient for tracking IT portfolios for most small companies, or even some midsize organizations, says Margo Visitacion, a VP with Cambridge, Mass.-based Forrester Research, but larger companies with large IT staffs and complex budgets typically can benefit from an IT portfolio solution. Such systems can be costly—$500,000 or more for an implementation is not uncommon—but the payoff comes from detailed visibility over IT resource allocation, and workflows and reports that support an IT governance process.
"If you have a package that tracks all this information, it gives you a level of visibility that most companies don't have," Visitacion says. "If you are a larger company, you need to have these sorts of tools."
Vendors that offer IT portfolio management include CA, which bought portfolio vendor Niku; as well as Compuware, which purchased Changepoint. IBM also offers IT portfolio tools, and some smaller niche vendors remain.
Lori Ellsworth, director of Changepoint Product Management with Compuware, agrees that IT portfolio solutions tend to be best suited to larger companies, though lower-cost hosted options are available. One key piece of advice for getting the most from these systems, she says, is getting line-of-business managers involved in setting ROI criteria. "It's important that the internal client be participating as an equal partner with these systems," she says.
Keep it simple
Diemolding doesn't have a specialized IT portfolio management package, but it has followed the practice of letting business managers initiate requests for new capabilities. With its use of ERP, says Orr, a major milestone was the migration to a new version of the Macola system in 1999. That version offered capabilities such as "backflushing" of materials and labor data. This feature allows the system to automatically assign or back-flush costing data to operations after the fact, rather than forcing machine operators to stop what they are doing to input data.
Orr says these new capabilities gelled with an initiative to reconfigure plant operations around lean and cellular manufacturing techniques, such as combining multiple machine operations into common work centers.
Diemolding's e-Synergy rollout has been user-driven. The system does require some user discipline in terms of properly assigning documents to a process, but following such procedures doesn't bother users, says Orr, because the ideas for how to leverage e-Synergy are theirs.
In other words, Diemolding's approach for phasing in the package help keeps IT and the business aligned. Or, as Orr simply sees it, "Getting the most from an application is a much easier sell when the ideas come from the users."
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