Measuring and Reporting IT Value (1 of 2)

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)…
90DaySpend
Click to enlarge …
  • (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)

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James MacLennan

... is the Managing Partner at Maker Turtle LLC, a digital consultancy focused on creating value in ways that align with your strategy and drive engagement with employees, customers, and stakeholders. He is an active creator, providing thought leadership through on-line & print publications, and public speaking / keynotes.