IT projects are very important for the modern business, however picking between any one of the many options that are out there can be very tough. The most logical way to pick an investment would be to pick the project option with the highest projected ROI, however IT ROI tends to be a hard number to calculate. There are a lot of hidden benefits and hidden costs that an IT investment brings, as well as some benefits that aren’t always intuitive to think about.
General ROI is calculated with this basic formula:
ROI = (Total Benefits – Total Costs)/Total Costs
A quick search yields that a good IT project will have positive ROI in the first year, and around 15% ROI in the third year. However the costs and benefits are not only hard to see, but hard to give an accurate monetary value to. Here are some things to keep in mind when evaluating ROI for an IT project:
The primary benefit of an IT project is increased productivity. However how do you measure this? The exact way to measure it varies from business to business but the idea is to somehow compare the amount of work done pre-project and the predicted amount of work that will be accomplished that wouldn’t have pre-project. Then you have to look at how much it might have cost to outsource or pay your employees for the extra work being done and how much the extra work is actually affecting overall profit. Avoiding the cost of labor yet still getting the work done is your primary benefit in terms of monetary value.
Another potential benefit is that older IT infrastructure tends to cost more in upkeep. Calculating the monetary value of this is simple: take the current upkeep cost of your IT infrastructure and subtract what you think the upkeep cost of the new infrastructure would cost, and those savings are the benefit in monetary value for upkeep.
Another benefit of improved IT infrastructure is reduced around the office costs, such as the option to avoid commuting costs by using video over the internet instead of flying or driving to a meeting. This is just one small example, and there is usually a multitude of ways you can save money with upgraded IT infrastructure, you just have to look for it and see how you can use your upgrades to their maximum potential.
The most obvious cost of an IT upgrade is the up-front price tag that you see. You just have to keep in mind any hidden costs, such as installation, monthly fees, or any other small print costs that might be incurred.
Another key cost to factor in is the upkeep of upgrades that may be forced upon you in the future. Certain IT upgrades will have a shorter lifetime, and sometime it is best to just stay on your current solution until the upgrade is more urgent. Also, ensure you do research into the upgrade you will be investing in, as previous consumers may have already bought the upgrade and can inform you about any unforeseen costs or common problems that may incur more costs later.
You also have to keep in mind that at any time, a major breakthrough may come in the technology you just invested in recently. If you are planning on a permanent IT upgrade, chances are that you will be forced to upgrade it sometime in the future anyways. Make sure that you always keep in mind the upgrade after this one when planning an IT infrastructure upgrade.
So although ROI on IT investments is hard to predict, I hope this has reminded you about some key things to keep in mind for this essential calculation.
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