Developing an accurate ROI analysis is a little like Noah having to build the ark. It's a daunting task to face...
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but essential in order to stay afloat.
Analysts say there's an increase in the number of senior executives mandating post measurement analysis before they sign a purchase order. And so while users would rather avoid the task, analysts recommend they face it head on.
According to Bruce Scheer, a principal for FutureSight Consulting, a developer of ROI tools and collateral to support the technology sales process, there are plenty of hurdles that need to be cleared before reaching the ROI finish line.
Some obstacles in creating an accurate ROI analysis for storage include a lack of model building experience and skills, no benchmarking data and a lack of vendor support.
"Creating an accurate ROI analysis takes a thorough understanding of financial analysis techniques and the key metrics that need to be included in any analysis," Scheer said. "To increase accuracy, you need to gather benchmarking data around the inputs and assumptions you are making as part of your analysis.
If there are no benchmarks the next step is to look at proxy data, he said. In other words, what other similar solutions have yielded in terms of organizational impact and ROI.
"We are seeing a movement within IT organizations to have the discipline of justifying larger capital expenditures. Storage definitely falls within this camp. The movement is still in its infancy, but is growing," he said.
When asked if calculating ROI was part of every storage buying decision, 31% of SearchStorage readers said they are attempting ROI analyses, but are having a difficult time grasping the intricacies of the process.
On the same note, 30% said it is a lot of work, but proving ROI is essential in order to run an efficient IT shop.
Chicago accounting firm Grant Thornton LLP, enjoyed a huge return on its storage investment when it consolidated a slew of remote office locations into a centralized storage network, but the company admitted that the ROI and an $850,000 per year cost savings was achieved through a simple tactic - they went for the gusto.
"We had a lot of challenges getting to the point we're at right now," said Jim Moore, Grant Thornton's head engineer.
Moore said there was a fair amount of guessing going on around its storage implementation. "We weren't sure which RAID configurations to use or how much capacity we would need. We're glad we didn't max out the [capacity of the storage] cabinets. That would have been like shooting yourself in the foot," he said.
Moore recommends that users use a partial implementation strategy to avoid any major issues.
Upper management keeping watch
Chief financial officers are taking more of an interest in scrutinizing large ticket items in the current economic climate, and chief information officers are responding to the need for financial analysis, Scheer said.
If IT managers want to invest in new storage capabilities, and vendors want to sell to these IT managers, they will need to cater to senior management that are shelling out the dollars. They are the ones who typically require the analysis before allocating investment resources.
It might also be wishful thinking to expect that ROI measurements are impervious to errors, but they are easily skewed.
Outside help good idea, but beware
So how does the storage user get the bill for the latest and greatest system approved?
Scheer advocates engaging an experienced, skilled third party to help build or assess the ROI analysis and models for integrity, accuracy and thoroughness in analysis. But, he said bringing in a third party adds to the cost of the analysis.
"An in-house decision maker needs to ask himself if this increase in experience, dedicated focus and additional benchmarking resources is going to provide a more accurate analysis, and is this going to result in additional benefits," he said.
There is always the option of bringing in outside consultants to validate internal ROI analysis, which can be cheaper than turning the whole process over to someone else.
Bringing in someone from the outside to validate in-house results can result in a lot of rework because they will inevitably find errors in the metrics and necessitate that they be re-measured.
"Sometimes this results in a great degree of rework," Scheer said.