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Provide an essay about analyzing Returns on Investments (ROI) it that can be stated that largely ROI remains in reality a tool for justification, not for measuring actual value, and that the role of the CIO that is in identifying those that do
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##Executive Summary
Analyzing Returns on Investments (ROI) it can be stated that largely ROI remains in reality a tool for justification, not for measuring actual value, and that the role of the CIO is in identifying those that do.
#Returns on Investments (ROI) Essay
Analyzing Returns on Investments (ROI), it can be stated that basically it is an estimation of costs and benefits. The uniqueness of ROI in Information Technology (IT) investments is that unlike the costs, the benefits might be harder to estimate. It is agreed upon that the estimation on ROI is at the proposal stage, in which ROI is one of the deliverables of project proposals (Hugos & Stenzel, 2007, p. 329).
In that regard, it can be stated that largely ROI remains in reality “a tool for justification, not for measuring actual value” (Alter, 2004). One of the reasons for the fact that ROI is underused at post-implementation stages, according to a survey conducted by CIO Insight, CEOs do not believe in the projections provided by the business case prior to the implementation. Thus, such CEOs have fewer reasons to believe those projections afterwards. In that regard, it can be stated that part of the difficulties associated with measuring ROI, which play a role in the way such tool is assessed is the measurement of intangible assets.
When measuring intangible ROI, it is all about translating what might seem as an intangible aspect into quantifiable values, which can be translated into dollar equivalents. The elimination of abstracts is what intangible ROI is all about, as indicated by Greg Walton, CIO at Carilion Health System, Roanoke, VA (Gillespie, 2002). Although some elements might be harder to quantify than others, they are all can be estimated on a monetary basis.
The point is that not all intangibles are worth measuring, and the role of the CIO is in identifying those that do. Those identified can be investigated in terms of aspects that are expected to change, and the monetary values assigned to those aspects. The problem is that in many cases there is no baseline measurement calculated and attached to ROI in many aspects imposed by architecture for IT intangibles (Hugos & Stenzel, 2007).
Thus, on the one hand, there are many cases when the benefits are merely estimated, and even when the estimation does not clear the expected standard value, e.g. hurdle rate of 13% CIOs might rely on a gut feeling (Gillespie, 2002). On the other hand, many Managers abandon ROI after implementation, due to the fear of being embarrassed by not reaching projected numbers. Thus, it can be seen that at large is ROI is about having the executives support (Getronics, IDG Research, & CIO Magazine, 2002). Thus, it is recommended that for ROI to become a real indicator for success is to rely on experience-based’ ROI calculations, where the reliance is on both the judgment and the numbers (Gillespie, 2002).
If a certain intangible benefit is difficult to assign e numerical value, but such benefit is nevertheless important for the business case of a specific IT investment, the goals of the investment should be clarified further, specifically if the unquantifiable benefits are important for the case in outweighing the costs. For other benefits, CIOs should rely on tangible benefits, clear, articulated, and isolated from the intangibles, so that the management is first convinced before moving to the intangibles.
When it comes to arguing for the benefits of ROI investments, a clear relationship can be seen between the failure of IT investments, costs overruns, and the basis of the executive decision upon which the investment was decided to be funded. The question that can be asked in that matter is whether the costs of failed projects could have been saved, if ROI was appropriately used prior to the implementation. Can ROI be used as a justification for an investment as well as a protection vest against project which serve as costs centers in the future? Considering the many factors involved in the way ROI is conducted, there is no clear answer to such question.
There are, however, means for making ROI analysis more credible and a more useful indication for the success of an investment. The main point of those means is simplification. Instead of using numerous and abstract measures of intangibles, the people in the enterprise should be able to think tangibly about intangible aspects. In cases such goal is unachievable for a specific intangible; such intangible should not be used as an argument. The simplification does not imply that intangibles which are important the organization is not worth measuring, rather than they should not be used in ROI unless they are quantifiable through experience based measures.
In that regard, important intangibles can be measured, e.g. the intangibles which are consistent with the enterprise strategy, in case a project was approved, where the assessment and the comparison to those measures in post implementation stages, will allow incorporating them in future IT developments. Such comparison will serve at the same time as an argument for conducting post-implementation evaluation of ROI, regardless of the resistance that might be met. In that regard, it can be concluded that despite the importance of intangibles in the case of IT investments, the consideration for ROI should be built on quantifiable aspects. Intangibles can be included as arguments, but they should be clearly distinguished and articulated separately, with consideration to the risks they might carry.