Interview

Clear answers to ROI questions

Mark Lewis

What is more important TCO or ROI? Or are these essentially the same matrix?
These are very different measurements. TCO measures all the costs assumed by the business over the life of the technology when it is purchased. ROI measures the profit implications of the investment. TCO deals with costs only. An ROI calculation concerns the percentage return above and beyond costs (investment) that the technology gives back to the company. Can vendors be trusted to assess how much their product is going to increase ROI?
Vendors can only be trusted when the numbers can be backed up with benchmarked, real-world data from a customer production environment. These numbers must be independently verified and the vendor must share its methods for tracking these measured results. Can vendors be trusted to assess how much their product is going to increase ROI?
Also, different industries, different size businesses will have dramatically different results from IT -- this gets to IT as strategic advantage. Some companies do not seize what the IT can do as well as other companies.

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Is there any accurate way to measure ROI?
There is only one way to measure Return on Investment: profit/investment. What you might be asking is there one "right" approach for use of ROI measurement across all technologies? No -- all IT has different implications, different effects inside the organization. What are some of the methods used to measure ROI? Which is the most accurate? Or does it differ from company to company?
Actually you are asking what other measurement methodologies are available to quantify in financial terms the benefits of IT investment -- in a strict definition ROI is one measure and is expressed in one way --profit/investment. What are some of the methods used to measure ROI? Which is the most accurate? Or does it differ from company to company?
Other financial measures to depict the benefits of IT investment include; Payback period, discounted cash flow methodologies, (Internal rate of return, net present value and present value index), the Henry Lucas IT Value Index and economic value added.

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