Achieving Business/IT Alignment Through ROI Analysis

December 1, 2003

Abstract

New York, NY, USA December 1, 2003

Celent urges IT executives to re-think the role of ROI analysis and realize its value as a tool for ensuring business/IT alignment, rather than consider it a burdensome process required to justify projects.

In the current conservative IT spending environment, "ROI" (return on investment) is king. Demonstrating a positive ROI is the key factor in getting IT projects approved, and C-level executives are devoting significant attention to evaluating potential IT projects. But the requirement to perform an ROI analysis is often perceived as a burden by IT departments, which often lack the business analytical skill to perform effective analyses on their own, leading to frustration and lack of value created by an expensive, time-consuming analysis process. Celent believes that ensuring business/IT alignment is an overlooked value of employing ROI analysis. Putting ROI analysis in the context of business/IT alignment helps change it from a burden imposed by "the bean counters" to a powerful tool to help IT become more effective and more valued.

"Business/IT alignment is a critical success factor for insurers," says Matthew Josefowicz, Manager of Celent痴 Insurance Group and lead author of Celent痴 new report, . "It is also a key C-level concern both inside and outside IT."

As Celent痴 recent CIO/CTO survey demonstrated, ensuring business/IT alignment is the top concern of IT steering committees (or "program offices"). And more and more, C-level business executives are serving on these committees.

"A thorough ROI analysis provides quantified and mutually-agreed-upon success metrics that can be used to manage the project and to evaluate it objectively once it has been completed," Josefowicz adds. "Lack of defined and accepted success metrics is the number one reason that most failed projects are judged to as failures."

The report examines some of the issues around creating ROI analyses within the context of business/IT alignment and discusses how this simple recontextualization of ROI analysis can transform it from a burdensome bureaucratic process to a powerful strategic tool. It reviews the current importance of ROI and business/IT alignment and the environment faced by IT project sponsors. It provides a high-level look at the ROI analysis process, and lays out Celent痴 simplified "Classic Six Questions" methodology. It also provides an overview of other ROI-based project valuation and justification methodologies.

The report also examines the importance of setting success metrics for IT projects, and the role that ROI analysis plays in that process. In addition, it looks at the role that vendors can and should play in ROI analysis. It concludes with a brief summary of key points.

The 22-page report contains 6 figures. A

is available online.

of Celent Communications' Life/Health Insurance and Property/Casualty Insurance research services can download the report electronically by clicking on the icon to the left.  Non-members should contact info@celent.com for more information.

        

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Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

 

New York, NY, USA December 1, 2003

Achieving Business/IT  Alignment Through ROI Analysis

Return to report Abstract

 

EXECUTIVE SUMMARY 3
INTRODUCTION 4
THE OVERLOOKED VALUE OF ROI 5
BUSINESS/IT ALIGNMENT MISALIGNMENT 7
THE "CLASSIC SIX" 10
SUCCESS METRICS AND PROJECT MANAGEMENT 12
COMMON ELEMENTS OF ROI CALCULATIONS 13
OTHER ROI-DERIVATIVE METHODOLOGIES 17
ROI AND SELLING PROJECTS INTERNALLY 18
ROI AND EVALUATING VENDORS 19
CONCLUDING POINTS 20
OBJECTIVITY & METHODOLOGY 21

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