Evaluating the Business Value of Information Technology

1. EVALUATING THE BUSINESS VALUE OF INFORMATION TECHNOLOGY 13.05.2005, Janne Laine

2. Background and problem • Evaluating IT is considered problematic in businesses in general • The value of IT is largely intangible (calculation ROI difficult) • The value-creating process in IT is not clear (cause-effect relationships unclear) • Traditional metrics do not capture the business value of IT • Many IT projects do not obtain their objectives • IT is not managed and steered by business (technology project perspective or business development project perspective) • The actual business value of IT is not measured • The necessary change to realise the benefits is not managed There is a strong need for adequate methodology and process to analyze and manage the potential business benefits of information technology projects

3. Objectives The study had two principal objectives: • To understand and describe the value-creating process in IT (how IT produces measurable business value) • linkage between IT and business (strategic alignment) • critical phases of the process, and their inputs and outputs • effective IT management and control according to corporate strategy and business requirements • To develop methodology to analyze the benefits of a single IT investment • business benefit identification and evaluation • clear responsibilities • foundation for change management

4. IT Portfolio Management IT Strategy BALANCED PORTFOLIO Business Objectives Technology Objectives Financial Perspective Customer Perspective Internal Perspective Learning & Growth Perspective New Capabilities, Informational Capital Investment Proposals Strategic Objectives Benefit Analysis Change Management Business Value Technology Investments Strategic Outcomes Complementary Capabilities Complementary Investments Business Strategy & Value Proposition Intangible Assets Human Capital Organisational Capital IT value cycle

5. Benefit Identification Benefit Analysis Flowchart Enabler Business Change Enabling Change Benefit Classification Benefit Type Quantification Level Effect Type Financial Impact BSC Perspective Impact Area Target Process Benefit Valuation Risk Analysis Benefit Ownership Risk Type Benefit Owner Saved Time Estimate Value Estimate Risk Description Multiplier Business Change Owner Value Rationale Severity Occurence Enabling Change Owner Probability Annual Saved Time Annual Total Value Enabler Owner Avoidance Plan Sensitivity Analysis

6. Enabling change • features, funcionalities etc. • Business change • the actual business benefit indirect • Effect type • direct/indirect • Type • new, better, stop • Metrics • benefit evaluation • Target process • sales, prodution, R&D etc. Risk • Benefit value • quantitative/qualitative/other • Ownership • clear responsibilities Key roles Benefit analysis • Enabler • new IT product or service

7. Conclusions • IT value cycle provides linkage between business objectives and IT management and identifies critical phases and elements in the value-creating process enabled by information technology • Business strategy and IT strategy become aligned and integrated • Benefit analysis is required to identify the business changes that ultimately deliver the benefits the IT enables • the responsibilities for both IT and business must be made clear (ownership) • Understanding the value-creating process and the role of IT helps managing the necessary business changes to realise the business benefits • IT is only an enabler for the potential benefits IT can only be responsible for the enabler part of the process, the business change requires also actions on other assets