ROI, CBA and how to analyze value

Monday, 10 August 2009

Thought: How is my business going to benefit from an ITSM program?

My answer to this would be that companies that take on a systematic evaluation of how to run their IT dept will see improvements in service, will be able to focus resources in the areas that the customers care about, will be able to really understand the quality of service that is being delivered.

Before we get into the question at hand, I would like to give a little context and definitions:


Return On Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. The return on investment formula:
Return On Investment (ROI)


Cost-benefit analysis is a term that refers to a process that, whether explicitly or implicitly, weighs the total expected costs against the total expected benefits of one or more actions in order to choose the best or most profitable option. The formal process is often referred to as either CBA (Cost-Benefit Analysis) or BCA (Benefit-Cost Analysis).

So we have two similar and popular methods of determining if a project is worthwhile, or which of a variety of flavours of project are most worthwhile. Neither of these two methods in their basic form can help us determine the value of a ITSM program as defined above until we can actually assign a monetary value to the service improvements.

Typical methods.

The methods I have seen to "justify" an ITSM project are:

1) Reduction in outage time/number of outages (MTTR/MTBF)
This choice seems easy, implement good incident and problem management processes and we should reduce MTTR etc. the issue here is most organisations setting off on an ITSM journey don't have the cost of these outages, and the ITSM program is probably the solution to that. Catch-22.

2) Reduction in costs due to efficiencies.
This is really headcount reduction but could be software licencing due to CMDB implementation, again it's very hard to understand the real savings associated with good ITSM practices.

3) Service improvement/time to market
This is a true goal for most ITSM initiatives, but how do we quantify this let alone monetize it?

So there we have it, ITSM a great goal but hard to justify, and even if we "wing it" and make some numbers up we risk missing, or just faking the results.

So I am left with this question: how can we determine and demonstrate the benefit of an ITSM adoption, in terms that mean something to most businesses (IE cash).


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