Why Is It So Hard To Measure ROI?

When asking questions about what the Return on Investment (ROI) is for a project, regardless of whether it’s software development or data warehousing/business intelligence, people start to fidget.  The same folks who are passionate about the initiative, spent weeks on the requirements and are willing to fight a cage match to get their project to the top of the priority queue are suddenly at a loss for words when asked what the return is to the organization if this work gets done.

Some of the quotes I’ve heard to the question “What’s the ROI on this project/initiative once the solution is rolled out?”:

“There is no ROI”

“…and even if people can do their jobs faster we’re still paying them so it’s not like we’re saving the company money.”

“I don’t think we can put a dollar figure on it.  We just need to do it.”

“What do you mean?”

“Unless it’s something you can sell, it’s too hard to measure ROI on technology projects.”

Quite frankly, it is rare to find a technology project that has the ROI clearly stated that is measurable, believable and agreed upon.

However, there is no hesitation at marshaling a small army of very expensive resources, along with the infrastructure to support the effort, and lock them away on a project for three months or six months or longer.  Total costs for an initiative go well beyond a project time line, and it isn’t hard to crest the $1M mark in Total Cost of Ownership within a year or two even on seemingly small projects.  That’s one heck of an opportunity cost.

I am a firm believer that anything worth doing is worth measuring, but often it’s not.  What’s worse is that the success of most projects is measured as the combination of three things:

1. Was it completed?
2. Was it on time?
3. Was it within budget.

While those are important measures, they really don’t matter if the organization sees no value from the investment.

I’m not sure if there’s just one major hurdle that everyone has problems clearing when it comes to ROI or if it’s different for everyone.  These are some of the mental barriers I’ve seen in people :

• Some have a hard time with dollars and cents- they just don’t think that way.
• Math scares them and all they can think about is how much they hated figuring out the Internal Rate of Return (IRR) and Net Present Value (NPV) problems for their Finance course in college
• People are overly cautious and don’t want to over promise
• The value that their department, or functional area, provides to the company is not very clear
• They assume it’s the cost of doing business so no ROI needs to be computed
• No revenue will be generated from the work and that’s all they think ROI is
• There was never a need to define and argue initiative ROI so they really don’t know how

What I always find fascinating is that, even though ROI is rarely given and most people claim it’s too hard (if not impossible), everyone knows what the ROI is for a project.   They just don’t know they know.  All you need to do is help them uncover it.

“I saw the angel in the marble and carved until I set him free.”  – Michelangelo

In subsequent posts I’ll share with you the chisels that I use.

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