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whitepaper: Measuring the true cost of IT - introducing TIM

by Simon John, Director, Verum-i Limited

introduction
A failed IT project in todays fast e-business world can sometimes mean the success or failure of an organisation. Understanding how a project will or has performed is critical. However, in our study of large New Zealand organisations, less than 20 per cent use some measure to determine the cost of IT. Even in most of these cases, traditional Total Cost of Ownership (TCO) models are used which focus on costs only and gloss over the true benefits both financially and socially that IT can generate. Without any good measures, IT is unable to align itself effectively to the business needs with the resulting misunderstanding by senior managers of the worth of IT, a number of failed projects and misallocation of IT resources. Verum-i proposes a better way of looking at IT, an analytical process driven approach, taking into account not only IT's costs and benefits but also its fit within the business objectives - we have called this TIM - Technology Impact Model. It is time for CIOs and IT managers to come in from the cold - they know they add value its just a matter of proving it!

issues and traditional models
Companies today still rely on the processes such as the TCO model to measure IT investments. This we believe gives a distorted view because TCO only focuses on the cost of IT over a particular period of time. Using this method, it is difficult to determine whether to go ahead with a particular IT project over another opportunity because the benefits are not fully realised. Therefore, as IT is not seen as providing benefit, it gains a tarnished reputation and becomes only associated with failed projects and high costs. Wonder why IT finds it difficult to get the funds it requires for its projects?

IT projects happen because there are issues within the organisation which need to be improved or the organisation wants to pursue a new strategic direction. What ever reason there is for IT spend, the goal of any project will be to enhance the performance of the organisation, either through increased staff productivity or process efficiencies. IT can have major effects on the behaviour of people, either positive or negative.

TIM deviates from models such as the TCO through its focus on measuring the benefits (or negatives) of IT as well as the costs. TCO practitioners do not measure benefits because it is believed that it is subjective, difficult and sometimes impossible. We believe that the measurement of benefits is not only possible in all cases but essential. Many issues surrounding the measurement of benefit comes from not fully understanding what is really to be measured and how it is to be done. If you know the states you are looking for and there is a difference of states between the beginning and end of the project and this can be observed, then it can also be measured.

what is TIM?
TIM provides a framework for analysing the costs and benefits of IT projects, taking an organisation through a number of clear steps:

- Review of business goals against IT project goals
- Metrics identification
- Analysis
- Conclusion
- Recommendation

TIM framework
© verumi 2001

TIM can be used to:

  • analyse work in progress projects
  • pre project analysis
  • post project analysis
  • project portfolio analysis.

 

TIM features
TIM works by incorporating the following components into its framework:

  • Cost
  • Benefit
  • Risk
  • Scalability
  • Fit

Each of these components is described below:

Cost - this includes:

Capital costs for the hardware and software
Implementation, support and IT staff costs
Business costs related to the project
End user costs such as UAT

Benefit - This is carried out on an individual company basis, depending on the KPIs involved but can include:

Increase in market share
Improved customer satisfaction
Better informed staff leading to less errors and improved productivity
Lower inventory levels

Risk - factors relating to the project may include:

Product not delivering the required solution
Implementation partner is poor quality or goes out of business
Rejection by users
Poor architectural fit with organisation

Scalability - Can be deemed as a risk but we believe it to be so important that it needs its own category. It relates to the potential future costs involved in upgrading the system to take into account potential future needs.

Fit - How does the project integrate with present, ongoing or planned IT projects?

TIM components

© verumi 2001

the benefits of TIM
 TIM has benefits over other models for a number of reasons:

  • The use of benefits in the model, giving more of a a balanced view of the cost of the IT project
  • TIM can be used at all stages of projects
  • TIM can be used to determine the return and costs of a portfolio of projects
  • If used in post IT project evaluation, TIM can be used to determine whether the goals of the project are the same as that of the business.
  • TIM uses a number of other aspects other than cost and benefits, giving a more detailed and 'world view' of IT projects needs:

the benefits of TIM
TIM has been developed to help determine more accurately the cost of IT projects. One of the fundamental mistakes that business today make is the misallocation of resources. IT is viewed as one of those areas where major investment is made, particularly in the era of e-business. Many companies maybe very wise in the way that they spend their resources, TIM helps to take some of the risk out of the decision making as well as providing senior managers with indicators to the true drivers of their business. If you would like to know more about TIM, please contact us.

 

Simon John
Director
Verum-i Limited
simon@verum-i.co.nz
http://www.verum-i.co.nz

 

Copyright © Simon John - Verum-i Limited 2001. Copying in whole or in part of this document is prohibited without the prior written permission of Verum-i Limited.