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F E A T U R E

Lessons From the Field: Beyond ROI

March 5, 2003
By Jonathan Feldman

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Clear-Cut Challenges

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	In this article
	Introduction
	Managerial Accounting 101
	Clear-Cut Challenges
	Upgrades and Fuzzy Logic
	Executive Summary
	Stupid Manager Tricks
	Epoll Results

You can strut your fly managerial accounting knowledge by showing that you know which situations require financial payoff analyses versus a more amorphous business benefit breakdown.

Doing a quick spreadsheet on tangible benefits--and nonbenefits when appropriate, like the "saving 15 minutes of bootup time" scam--can pay off big time. But doing a "dollars and cents" comparison doesn't mean you have to chuck your judgment out the window. One interesting example that Kennedy cited combined business judgment and cost comparisons. He went through a cost-savings exercise much like many of us do, showing how embarking on a new telecom contract could save his company significant dollars, both immediately and over several years.

The spreadsheet, however, did not ignore the business risk: One of the company's locations might be closing, and the telecom contract didn't have an exit clause for this possibility. However, the immediate savings were so compelling that embarking on this contract was a clear win.

Doing a quick spreadsheet on why you should get rid of an IT system can cure a headache and make you look good to boot. Consider United 1st Federal Credit Union's five-year-old "Loan Line" IVR (interactive voice response) system. It cost $10,000 over five years, which sounds reasonable. However, the bank was getting fewer and fewer calls on the system, and more important, the folks calling in seemed to have no hope at all of getting a loan. Kennedy asked the loan officer what the approval rate was on this system; it turned out to be just 10 percent. Kennedy then created a spreadsheet based on internal costs, and it turned out the IVR system cost the bank around $150 per successful loan, a much higher cost than the other methods the bank used. Naturally, 20 minutes after this spreadsheet was created, the death warrant was signed (see chart "A Compelling Argument for Decommission").

Geek Skills

Compelling Argument for Decommission

click to enlarge

Lest you think that we're discounting your hard-won IT skills, let us assure you that pure-geek--such as infrastructure sizing--absolutely do matter, both from a dollar standpoint and a business credibility standpoint.

Consider these cautionary tales from reader Steve Ruger, an independent project manager in North Carolina. One client, a large computer-chip manufacturer, was replacing its ERP (enterprise resource planning) system, and the first round of infrastructure sizing--done after the budget was prepared--indicated that the original $22 million budget needed to be closer to $30 million.

"As I walked in there, the CIO's career was flashing before his eyes," Ruger says. "He was going to have to ask for an additional $8 million." Fortunately, after going through the vendor's sizing algorithms, which didn't take into account usage patterns, Ruger was able to determine that the sizing for the network was more like $21.5 million. Lesson: Get input on sizing from more than one source.

Ruger also saw a horror show at an international train manufacturer, where data load was calculated on a small system and then predicted in a linear fashion on the huge production system. The team couldn't do a system conversion simply because "that big of a slug of data across at one time would take a week, and we couldn't shut down both systems for a week," according to Ruger. It ended up taking the team a month to do a parallel conversion.

Lesson: To successfully create a project budget, be careful how you measure needs. Don't think of scalability as being necessarily linear. And by all means, be reasonably sure of your sizing before creating the budget.