Your understanding of the strategic objectives of an ROI analysis will determine how the analysis is ultimately done and used. The matter of strategic objectives has two related parts. One deals with the objectives and context of the proposed investment. The second deals with the objectives and context of the ROI work itself. An adequate understanding of the first part of the strategic objective must include answers to these key questions detailed below.

The value of an investment is directly related to the programmatic goals and business process employing the new technology. For example, the strategic goal of investing in a new financial management system would be to improve the quality of financial decision making and control of resource flows, not simply to produce faster or more complex accounting reports. Attention to the strategic objectives keeps attention focused broadly on the kinds of benefits sought and how to measure them, rather than narrowly on the technology. Focus on the strategic and business objectives will also lead to a clearer understanding of the full range of benefits to be expected from the investment.

Stakeholders are critical players in the success of new projects. Ignoring or underestimating the importance of their role puts the success of an investment at great risk and can lead to substantial unanticipated costs or missed benefits. One large organization recently developed an extensive new customer help desk application without the participation of the staff who handled customer phone calls. Those staff members learned of the new system the day before it went live. The result was poor performance and a serious blow to staff morale—lower returns and higher costs.

An ROI analysis can itself be a substantial investment. Extending its scope, level of detail, or complexity beyond what is needed for effective decision making is a waste of resources. Attempting an ROI analysis that is beyond the resources or capacity of the organization will also waste resources. Choosing an appropriate scope for the analysis is therefore a critical part of the process. These choices determine the details of the ROI analysis itself: kinds of data used, whether hard or soft estimates will suffice, the kinds of projections, quantitative or qualitative data that are needed; which financial or non-financial outcomes (customer/user satisfaction, social or political outcomes, improved equity) are all important. The answers to these questions then influence the kinds of personnel, tools, and other resources needed.

Consideration of risk should always be a part of the ROI analysis. Risk factors arise from the nature of the project itself (complexity, scale, novelty), its organizational setting (conflict, resource constraints, top-level support, time pressures), and the larger environment (political turbulence, crises, and policy shifts). Risk analysis, discussed in some detail later in this chapter, examines the likelihood of risk factors affecting the project and what elements of the project or its results are likely to be affected.

Table 1. IT ROI Questions from the CFO to the CTO⁴