ROI: More Than a Good Idea

 
 
By Peter Coffee  |  Posted 2002-01-07
 
 
 

During my years with Exxon, I developed an almost reverent awareness of the difference between "capital" and "expense." The only good thing you could say about expense was that you got to deduct it. Capital investment, on the other hand, meant wed found an opportunity to invest in our business at a rate of return that was better than keeping the money in the bank.

IT, in particular, needs to be managed as a capital investment opportunity, rather than being merely a money pit of expense—or, as Ronald Reagan once famously said of government, "just like a baby: an enormous appetite at one end and no sense of responsibility at the other."

Oddly enough, its the federal government that has placed itself under a mandate to "develop, as part of the budget process, a process for analyzing, tracking and evaluating the risks and results of all major capital investments made by an executive agency for information systems. The process shall cover the life of each system and shall include explicit criteria for analyzing the projected and actual costs, benefits and risks associated with the investments," commands the Clinger-Cohen Act of 1996 (which you can read at policyworks.gov/policydocs/2.pdf).

Its taken a while to get the momentum going, but the word is out that in the coming year, ROI metrics for federal IT spending will have to stand up to several levels of review. "You can no longer slough off the bureaucratic requirements," warned DOD Policy Director Sandy Rogers in a briefing last summer.

As we sometimes explained to outsiders, Exxon isnt really an oil and gas company: Its an investment club whose primary expertise is in energy opportunities. Even the government, not known for its businesslike approach, likewise demands that IT has measurable and satisfactory ROI. Does your organization even pretend to be as rigorous in evaluating ITs return?

Treat IT as an investment, and you wont throw good money after bad just because it feels like the familiar thing to do.

Tell me about your IT portfolio at peter_coffee@ziffdavis.com.

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