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5 August 2008

The business value of IT

By Andrew Clifford

It is hard to measure the business value of IT. But there are a few simple things you can do to make measurement easier.

If we knew how much IT was worth to the organisation, we could make much better decisions. We could decide what systems to keep, what to discard, where to invest. We could show that IT does not just burn money, but creates profit for the organisation.

Yet we hardly understand what value means. Often we even muddle up value with cost. The value of IT has nothing to do with how much IT has cost in the past, or how much it would cost to replace. We have to understand how much it is worth to the organisation.

We can talk sensibly about the value of IT change that alters the costs and risks of IT. System quality management estimates the value of IT investments that save IT cost or improve risk and responsiveness. But useful though this is for IT management, it is not true business value.

The problem is deeper than we might imagine. When we talk about IT, we talk about things which do not, of themselves, give value, such as projects, and IT delivery processes. Or we talk generally about business processes, without identifying how much of that value comes from the IT, and how much comes from the human activity.

To talk meaningfully about true business value, we need to restructure how we present IT. Presenting IT as a complex of technology, process and organisation, with projects, service delivery processes, IT organisation, architecture and infrastructure, is meaningless to business value. We need a simple thing that represents all of this, that could potentially be of value. The concept of "system", taken broadly to mean a system service, the application that supports it, and all the technical infrastructure and human support infrastructure around it, starts to make IT into a more identifiable thing that can have a value.

We need to be clearer about IT's contribution. It is hard to disentangle the value of IT from the value of the business processes it supports, but we have to do this if we want to value IT. In a strict sense, the value of IT is the value of automating the storage, transformation and communication of information. To get closer to a true business value of IT itself, we have to stick to this narrow definition of IT, and exclude the broader business processes and changes of which it may be a part.

These changes of view do not answer the question, but they do make the question possible to answer. We can now approach our business colleagues with a sensible question, "What is this thing worth to you?"

This is not an easy question to answer, but I think it is the right question. It separates what IT itself delivers from the business context into which it delivers, and from the paraphernalia of its delivery.

Will the answers be right? I strongly suspect that the only way to get more accurate valuation is simply to act on whatever answer they give. More on this next week.

Next: The value of belief

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