This started off as a quick response to a question on LinkedIn Answers … but I got on a roll …
Here’s a simplistic way to measure and report on IT value:
- Is your IT group working on the right things?
- Are they working on the right things well?
- Is your IT spend comparable to industry norms?
- Is your IT spend comparable to other measures of company performance?
A bit more detail … balancing quantitative and qualitative …
- (Quantitative) To make sure you have business alignment, the strategic objectives of the company should be identified, and all projects / IT investments should be aligned with those objectives. Track the relative size of spend for each of the objectives, and make sure it matches with your priorities … here’s a sample (I even slipped in some sparklines)…
- (Qualitative) Regularly (i.e. minimum once per quarter), review this aggregated spend with the business. Conversation around relative priority can easily segue into a “customer satisfaction” review.
- (Quantitative) Check with industry groups or research firms to get an idea of the typical measure of IT as a percent of revenue (ex. IT budget of 1.5% revenue is typical for manufacturing firms). Be sure to clarify if this includes depreciation expense or not.
- (Quantitative) For many companies, revenue isn’t directly impacted by IT as much as Cost of Goods or SG&A. It may make sense to compare annual growth rate of year IT budget to your company’s gross margin.
(I can post examples for the last two if there is interest – please let me know)
(Update – check out the second part of this article here)