Why Calculating ROI for IT Investment Can be Tricky

Nowadays, more than ever, companies need to control their financial investments and particularly those in IT. This is because of the increasing need for digital transformation and multiple paths to do that, each one with different cost and unpredictable results. This makes the ROI hard to measure sometimes. Let’s see an example below:

A company wants to upgrade its data analysis capabilities of its employees. They organize a presentation to showcase the capabilities of Alteryx which is a drag and drop data blending tool. The purpose of this presentation is to convince employees to shift from using Excel to Alteryx.

The reception of the tool was good and was agreed to get 10 licenses for 10 employees. each license costs $5,195 per year, which yearly comes at a cost for the company of $51,950. The Senior leadership team expects from this investment to generate an additional 50.000 because of increased efficiency and resource allocation. The benefits of the upgrade are expected to show in a year period.

The brand message of Alteryx is “democratize the data science profession” which means that every employee can use analytics abilities without a data science background. Data science is a catalyst for digital transformation in most of the competitor companies, thus SLT decides to invest in ALteryx.

However they didn’t take into account some variables as:

Extra training – The employees that will need to use the software will need training as it is a new tool for them. This training comes with time and cost.

Lost Productivity during the transition – offering a new tool to your employees doesn’t mean automatical adoption. Most of the employees are resistant to change and they will spend some more time to start using the new tool

Support cost – Alteryx is supposed to be straightforward and easy to learn. However, if the employees ask for support because of difficulties using the new tool, SLT cannot deny this to them.

The initial assessment cost was Just $51,195 but it turned out that this cost was $93,195. Now, we just hope that other unpredictable factors will not cost us $8,755 in order to not have losses above $101,950, then we can think about profits.

We can see how easy is to manipulate the ROI of the IT investment. To avoid this outcome when we upgrade our IT capabilities we should focus on real benefits and don’t just upgrade for the shake of digital transformation!

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