This guide views any IT investment project as embedded in its organization’s enterprise architecture and in a context with three major elements: relevant business processes, the organizational setting, and the external environment.⁵ These are illustrated in Figure 1 on page 10. The immediate context of any IT project is found in the current business process(es). Some of the costs and returns of the project will be directly linked to business processes, such as training costs for staff involved or the improved efficiency of the overall process resulting from project implementa- tion. Other costs and returns will be linked to the organization, for example through changes in resource flows, performance changes and changes in workflow and internal relationships. Linkages with the external environment may be significant as well. Resources may be committed from that environment to support the project, and additional costs may be imposed on external persons or organizations by changes in the way services are delivered or other business is conducted.

For example, an agency implementing EDI (electronic data interchange) to support purchasing transactions may be imposing costs on vendors who wish to do business with the agency and have to invest in developing their own EDI capabilities. The way Figure 1 below represents investment costs and returns as part of the same context is an important way of looking at ROI. Neither the costs nor the benefits of an IT project begin and end at the project’s boundaries. Financial allocations to a new project mean fewer resources somewhere else in the organization or its environment.

Changes in one part of a business process may impose costs on other parts that have to adjust activity, retrain staff, or modify other systems. Increased efficiencies in one business process can make resources available elsewhere in the organization, but may also result in changes in other linked processes within the enterprise.

Whether you see something as a cost or benefit of an IT project may depend on whose perspective you take. The expendi- ture on a new personnel management application is a cost to the agency that pays for it, but it is a benefit to the vendor, who is an external stakeholder. These links make it clear that an analysis of costs and benefits of an investment can require attention extending well outside the project itself into the organization and its environment. Business processes are the critical connection between the project and the rest of the organization. So attention to business process linkages with the project is an important part of the overall ROI analysis.

Table 2. Approaches to Cost and Return Measurement

Measurement Question	Measuring Costs	Measuring Returns/Benefits
Can we afford this and will it pay for itself?	Financial metrics; defined by policy and accepted accounting principles ; reporting and control-oriented; standards- based or consistent; not linked to business process; ignores important cost factors; short time frame; data routinely collected/reported	Savings as measured in accounting categories; narrow in focus and impact; increased revenues, reduced total costs, acceptable payback period
How much ‘bang for the buck’ will we get out of this project?	Financial and outcome/quality metrics; operations and management oriented; defined by program and business process; may or may not be standardized; often requires new data collection; may include organizational and managerial factors	Possible efficiency increases; increased output; enhanced service/product quality; enhanced access and equity; increased customer/client satisfaction; increased organizational capability; spillovers to other programs or processes
Is this the most I can get for this much investment?	Financial and organizational metrics; management and policy oriented; non-standard- ized; requires new data collection and simulation or analytical model; can reveal hidden costs	Efficiency increases; spillovers; enhanced capabilities; avoidance of wasteful or suboptimal strategie
Will the benefits to society (our state, our city, etc.) justify the overall invest- ment in this project?	Financial, organizational, social, individual metrics; individual and management oriented; nonstandard; requires new data collection and expanded methods; reveals hidden costs; potentially long time-frame	Enhanced capabilities and opportunities; avoiding unintended consequences; enhanced equity; improved quality of life; enhanced equity; enhanced political support