Measuring the value of IT

Many IT organizations are under increasing pressure to demonstrate and improve the business value of their IT investments. Many of the attempts to do so have been focused on ROI measures at the front end as part of developing a business case for the IT portfolio’s proposed investments — but these are only estimates of expected business value. Actual delivered business value can only be measured by taking a life-cycle approach, working with the business to measure actual benefits after the project is complete.
Firms that strive for best practice in IT portfolio management need to apply a credible standard
methodology across the enterprise to measure the business value of investments, both when
proposed and when delivered.

IT organizations that are looking for a straightforward methodology for valuing IT investments
should take a look at the BVI methodology developed by Intel’s IT organization. Intel, the world
leader in silicon innovation, is one of the most technology intensive organizations in the world and IT plays a critical role in its success.

The BVI methodology helps Intel prioritize investment options, make data-driven decisions, and
monitor progress. It goes beyond using purely financial criteria to encompass business value and
what Intel calls “IT efficiency”:

• Business value measures both tangible and intangible benefits. Benefits are assessed based on a set of weighted criteria that include such things as customer need, business and technical risks, strategic fit, revenue potential, level of required investment, and quantification of innovation and learning generated. Each project is given a numerical score for each criterion and the weighted totals are summed to give a single quantitative number for its business value.
  
• IT efficiency measures its impact on the IT organization. In an effort to reduce costs and become more agile, IT organizations are increasingly developing enterprise architectures, establishing standards, and acquiring core competencies in key skill areas. How well a project complies or “fits” within this framework establishes its IT efficiency. A project that does not conform to the architecture and/or standards will be more costly to implement and support and will also entail greater risks. Using a set of weighted criteria enables Intel to quantify the IT efficiency of each project.
• Financial criteria measure financial attractiveness. Intel clearly distinguishes business value from financial value. There are some projects which have significant business value (e.g.,responding to a competitor’s threat) but may not be financially attractive. Other investments may be costly but required as a result of regulatory or compliance purposes (Sarbanes-Oxley). Intel typically uses at least three financial metrics in determining financial attractiveness to avoid some of the problems outlined earlier. Using NPV, IRR, and payback period together gives a more robust assessment of a project’s true financial attractiveness.

BVI provides Intel IT with a common language and framework for discussing IT investments,
assessing business value and IT efficiency contribution based on common criteria, and
prioritizing diverse investments based on the environment and IT strategy. The BVI process
enables continued and proactive alignment of the IT project portfolio with corporate and IT
business strategies.

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