Return on Investment in IT projects

Author : DAOUDI Samir | Context : MSc Software Engineering – Professional issues in computing

Companies invest huge amounts of money in IT projects to deploy solutions and software- applications that might improve and enhance their incoming and productivity.

In some cases and when the companies aim to deploy new technology or adopt a new solution that are very expensive, they might think about the benefits of the solutions and whether the amount to pay won’t be just a waste (George.T, Francklin.J 1996).

Such projects start generally with a step of analyse that consists in gathering the different factors related to needs, probable issues, deadlines, requirements …etc. At this stage the question of spending / benefits is discussed. Managers and deciders have to understand or at least get a general picture of the comparison between what will be spent and what are the benefits of that, this analysis is known as the Return on Investment analysis. So what is exactly ROI?

ROI is a measure for accountability that answers whether there is financial return for investing in a program, solution or performance improvement? (Particia.P, Jack.J 2006).

It is in fact the comparison of investments and earnings in order to determine or estimate the benefits that can be generated with such solution. This approach is widely used in companies, managers aim to evaluate the economic contribution and the return on investment that any solution bring to their organization (Patricia.p 2001).

I am employed by a joint venture with three partners in the field of oil and gas. Its operations are spread over different locations; The ITC department is a shared and support different locations with more than 2000 users. The budget that is allowed for us is enormous and our projects involve individuals from different departments and can affect the whole company.

This is why the project team is usually under a lot of pressure, buying very expensive solutions; training user, migration of data, maintaining the SLA …etc. are some of its main concerns. The management add more pressure by requesting continuous reports about the status of the projects from the initial phase until its achievement.

The ROI in any project is one of the most important aspects to consider, the process performed in order to estimate the ROI can differ depending on the type of project. However, in general, the process that is in place to approve projects is the following:

Analyse of the needs and the user’s requirements are performed.
The needs are translated into technical draft of the solution.
Examining the available solutions in the market for the requirements.
Comparing the different solutions based on different criteria.
Estimating the amount of money that should be spent in such solution (including the different factors such: analyse, implementation, tests, training, maintenance …etc.).
Estimation of the benefits that can be generated by the new solution.
Calculating the ROI of the project.
Defining the UAT that should be conducted in order to approve or roll back the project.

The task of defining the ROI in a project is very critical and there are few of no technical ways to determine exactly the ROI as it consists mainly in estimations and suppositions. However, our project team improved their estimations with time and provide more precise and efficient estimations.

Having troubles with this task might ends up with unattended results and the complete failure of the project.