why roi & tco stink as measures of system value
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From a CAI webinar that takes a new perspective on the factors that contribute to value and will look beyond the standard metrics of return on investment (ROI) and total cost of ownership (TCO). Because there's more to value than just money!TRANSCRIPT
04/08/2023
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Why ROI & TCO Stink as Measures of System Value
July 16, 2014, 10:30am
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Steve WeissmanMinister of Process & Information BettermentHolly [email protected]
Hosted by:
Jessica [email protected]
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Slide: 3
• Provides expert consulting and professional training on process and information betterment– pragmatic best practices for strategy and policy development,
needs assessment, RFP preparation, change management, user adoption, and more
– driving the receipt of Maximum Total Value® from your information and information technology
– helping people work better and work better together
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Why ROI & TCO Stink as Measures of System Value
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Let’s Start at the Very Beginning
ROI
The Use of Return on Investment (ROI)in the Performance Measurement and Evaluationof Information SystemsToronto, Ontario, CanadaMarch 11, 2011
Peter AndruAlexei Botchkarev
The Use of Return on Investment in the Performance Measurement and Evaluation of Information SystemsPeter Andru and Alexei Botchkarev
Toronto, Ontario, CanadaMarch 11, 2011
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Let’s Start at the Very Beginning
TCO
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So What’s the Catch?
Strategically Short-Lived» Dominate initial discussions but rarely reviewed after
system selection
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So What’s the Catch?
Strategically Short-LivedOff the Mark
» “Return on Investment” generally focused on a single point in time (i.e., payback) despite solution lifespans of many years
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So What’s the Catch?
Strategically Short-LivedOff the Mark
» “Total Cost of Ownership” suggests spending is finite when expenses are incurred each and every year of service
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So What’s the Catch?
Strategically Short-LivedOff the MarkIncomplete
» ROI and TCO address economics only
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There’s More to Value Than Just Money
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Your Objectives
… and work better together
To work better …
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On the Road to Maximum Total Value®
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On the Road to Maximum Total Value®
Value
Value
Value
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On the Road to Maximum Total Value®
Value
Value
Value
MoreValue
MoreValue
MoreValue
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On the Road to Maximum Total Value®
Value
Value
Value
MoreValue
MoreValue
MoreValue
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Hey, Don’t Just Take My Word for It
“I wish I had thought of this when I started, but I can’t go back and start again.”
– CIO of a major athletic shoe manufacturer
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What is “Value”?
“Relative Worth, Utility, or Importance”¹ » Notice that money is not the object
¹ Merriam-Webster
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The Value Disconnect
EconomicsProcess ChangeCollaboration
Required for justification but irrelevant to implementation success
Irrelevant to justification but critical to implementation success
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Value: It’s What’s for Dinner
You May Be Implementing for ‘Compliance’» To heed new regulations or assuage your legal
department
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Value: It’s What’s for Dinner
You May Be Implementing for ‘Compliance’But You’ll Be Grilled On Value
» To justify the financial and human resources you’ll expend
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Impediments to Value
Under Pressure, Over Spent» Schedules and budgets as measures of “behindness”
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Impediments to Value
Governance, Social, and Mobile Initiatives» Nothing like trying to do it all,
and to do it all at once!
No wonder a CIO’s average tenure is only 18 months!
????
??
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Politics
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Baggage
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Religion
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People
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“It’s Psychology, Not Technology”
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Change Management = Parenting
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“Put a coat on”“Prioritize value”?
Getting People To Do Things They Don’t Want to Do But You Know is Good for Them
“Clean your room”“Eat your vegetables”
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Now Back to Our Regularly Scheduled Program
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Economics
ROI» Investment» Return
TCO» Costs
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Economics
CapitalLaborSupport
Return
Dollars
Time
Utilization
Maintenance
Training
Deployment
Implementation
Procurement (initial investment)
ProductivityProfitPositioningCompetitive Standing
Investment
TCO
ROI
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Image: Flickr.com / MightyBoyBrian
Greater Efficiency, Effectiveness» Greater customer satisfaction
Unforeseen Opportunities» Early payment discounts
Process Change
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Process Change
Image: Flickr.com / MightyBoyBrian
Procedures Applications
Processes Technology
Working Betterdiscrete process innovation · continuous process
improvement
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Collaboration
Less Duplication of Effort» Saves time, frustration
Better Quality» Facilitates review, validation, correction» Reduces risk
Image: ©Ning Zhao | Dreamstime Stock Photos
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Collaboration
Working Better Togetherlearning & knowledge · relationship management
EmployeesEmployees
SuppliersSuppliers
CustomersCustomers
ShareholdersShareholders
InvestorsInvestors
ExecutivesExecutives
DirectorsDirectors
IT Dept.IT Dept.
FINANCE DEPT.
• CFO• Auditors• Managers• Receivable
s• Payables• Payroll• Pension
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Information as an Asset
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Elements of Information Value
Medium
Data
Format
Context
© Holly GroupAll Rights Reserved.
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Elements of Information Value
Missing or poor data? - No utility.
Data
© Holly GroupAll Rights Reserved.
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Elements of Information Value
Missing or poor data? - No utility.Missing or wrong context? - Not meaningful.
Data
Context
© Holly GroupAll Rights Reserved.
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Elements of Information Value
Missing or poor data? - No utility.Missing or wrong context? - Not meaningful.
Mismatched formats? - Not shareable.
Data
Format
Context
© Holly GroupAll Rights Reserved.
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Elements of Information Value
Missing or poor data? - No utility.Missing or wrong context? - Not meaningful.
Mismatched formats? - Not shareable.
Improper medium?- Not receivable.
Medium
Data
Format
Context
© Holly GroupAll Rights Reserved.
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Elements of Information Value
Decisions regarding one strandaffect all the others.
Medium
Data
Format
Context
© Holly GroupAll Rights Reserved.
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Elements of Information Value
Decisions regarding one strandaffect all the others.
Thus, they all must be continually well orchestrated in order to maximize value!
Medium
Data
Format
Context
© Holly GroupAll Rights Reserved.
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ROI and TCO Don’t Talk About This
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ROI and TCO Don’t Talk About This
And That’s Why They Stink as Measures of System Value!
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Questions?
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Thank You!
Steve WeissmanMinister of Process & Information BettermentHolly Group
Tel 617-383-4655Email [email protected] @steveweissman
Visit Weissman’s World at blog.hollygroup.com
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Steve WeissmanMinister of Process & Information BettermentHolly [email protected]
Hosted by:
Jessica [email protected]