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Actual versus planned ROI for implementation of key initiatives

Planned ROI and Actual ROI are two different things and very often they are used interchangeably.  So in shared services, if you outsource within US you can get 15% ROI and if it is off shored you can expect 30% to 40% ROI.  For a very long time, these were the numbers that were floating around (with minor variations).  Otherwise there will be a huge gap between Planned ROI (what you think will be in the cash box) and Actual ROI (what is actually in the cash box)

Here are some best practices to minimize the gap between Planned ROI and Actual ROI

• Communicate clearly what ROI is expected out of Globalization efforts.
• Differentiate between First Year ROI and Ongoing (steady state) ROI to avoid confusion and set expectations.
• Factor in all the costs (TCO- Total Cost of Ownership).  Do not leave out any costs required to make the ROI reach a particular target.  Call a spade a spade.
• Document and communicate top 3 assumptions associated with the ROI (For example, you can state that in order to achieve 35% ROI, you have made the assumption that the implementation process will be completed in 6 weeks).
• Clearly define what will happen if the assumption is not met, at least directionally.  For example, in the case above you can state that for every additional week delay in implementation process, the ROI for the 1^st year will be lowered by 2%.  With little effort you can easily model such impacts (or you can call Zinnov and we love to help you with such modelingJ).
• Define all the tracking and reporting mechanisms needed to capture actual ROI.
• And finally, in the event that you deviate away from the goal, do not strike the panic button and state that Globalization does not work.  Conduct a Root Cause analysis and approach it like you would with any other problem.

So let’s review in simple terms:

Planned ROI – Actual ROI = Zero (you are doing as planned).

Planned ROI – Actual ROI = +ve (Not good. Conduct a rapid assessment to decipher what is going on. Often, you do not need consultants for this though we are happy to take your money and find the same problems you would have found anyways).

Planned ROI- Actual ROI = -ve ( You may be celebrating because you made more than you planned but it also reflects poorly on your planning.  You should call us because we can give you some good peer group “benchmarks”)

Percentage of projects with assigned architects = number of projects with assigned Architectures [Data, Technology, Information and Systems] to the Total number of Projects.

Annual savings from reduction in interfaces, Interfaces an be Channel Interfaces, Databases, UI, Middle Ware, Web Services.

Annual savings from standardized purchasing agreements = Amount[Currency] saved by standardizing the technology, which can include Servers, OS, Middle Wares, Databases, Mainframes, Platforms.

% of IT investments in shared infrastructure = IT investment in shared infrastructure / Total IT investment in enterprise.

Shared infrastructure will include all cost incurred in sharing servers, S/W, H/W, IT Facilities.

% of IT investments in Enterprise systems =  investment made in enterprise wide application /total investment in IT

Ratio of investment made in local applications to the total IT investments made in enterprise

Local Applications are system used in local business units. used for portfolio management, landscaping of applications.

% reduction in maintenance cost of all systems. Know, how much cost y-o-y your manager can bring it down. to be calculated as total reduction in maintenance of IT systems / Total maintenance cost.

Total value creation from IT growth function: IT growth function will include

1. Any research activity in IT which can lead to business growth
2. Any Architecture, design or development project [IT]which will be used by business stakeholders, which will lead to growth

Total Value created from these activities is required to be estimated to record this metric.

Total value creation from IT support function: IT Support function includes all activities by IT which results in:

1. support of any IT System which is currently been utilized by the business users
2. Support of IT System currently utilized by the Customers of the business
3. Any IT activity or new development which is utilized to stabilize the fluctuations in business.

Estimation need to include the value creation from any such activities.