How to Measure the Value Your Company Is Getting From its IT Spend

Technology spending can seem like a bottomless pit. As the cost of cybersecurity, big data and other tech-related categories goes up, CEOs are increasingly finding themselves sitting across the desk from their CIO and asking the question: What are we getting for the money we’re spending? Often, CIOs can’t give a straight answer, but we can.

“Much like earnings per share, this ratio can give you a quick snapshot of the effectiveness of your CIO and the results generated by your IT team compared to your investment.”

Measuring IT’s impact is simply, “business capabilities divided by costs,” (or B/C). Much like earnings per share, this ratio can give you a quick snapshot of the effectiveness of your CIO and the results generated by your IT team compared to your investment.

The equation can be performed by weighing each capability according to its value (note: a capability is not the same thing as an application; a company may have thousands of apps but just dozens of capabilities). One way to weigh IT capabilities is placing each into one of four progressively higher-value categories: table stakes, differentiators, incremental revenue drivers, and innovations.

Dell recently used this approach to conduct software rationalization in its manufacturing and supply chain facilities. As a result of measuring its spending and return on IT, Dell found and replaced roughly 75 highly customized applications and reduced IT costs by $96 million a year, according to Forbes. And Dell is not alone. Multiple research reports suggest that about 85% of CIOs say their enterprise applications need to be rationalized.

Is your CIO giving you the metrics you need to make informed decisions that will help cut IT costs and increase IT effectiveness? Using a consistent measurement tool such as B/C ensures your IT spending is being focused in areas that will drive company growth, rather than investing in technologies that don’t provide maximum return.

Robert Dvorak :Robert Dvorak is president and founder of KillerIT.