Originating Author: David Floyer
Justification of IT initiatives are based on tangible savings (e.g., saving of direct costs such as equipment) and intangible savings (e.g., end user productivity). It is important that both are evaluated, even if greater weight is given to tangible benefits.
This article gives some ideas on a simple methodology to calculate some intangible IT benefits to the business.
Calculating application value
A core building block of calculating the business benefit of IT is to establish the value of the applications delivered. One simple method is look at the value contributed by employees, assess how much time is spend by users on an application, and then determine the relative contribution of working on this application compared with the other tasks than an employee performs.
For example, in an organization with $1 billion in revenue and 4,000 employees, the average value generated by each employee is $250,000. If they spend 50% of their time on IT, and 10% of that time on email, and doing email is as productive as anything else they do, the value supported by the email application $12,500 for each employee, or $50 million for the whole organization. If the value contribution of the email application was 10% more than other tasks, the value to the organization would be $55 million.
Simple surveys can be used to determine how people spend their time, and what employees and management rate the contribution to value generated. Application value can be used as a basis of estimating the business benefits of IT initiatives.
Calculating the benefits of improved availability
The value of increased availability is calculated from the application value multiplied by the improvement in availability multiplied by the impact on productivity if the NAS application is not available to the end user.
Calculating the benefits of improved performance
Improved performance of applications can help the productivity of application end-users, especially when there are a number of steps to complete a total business transaction or solve a business problem. The value of improved performance is calculated by multiplying the application value by the estimated productivity improvement from the improved performance.
Calculating the benefits of improved flexibility
Research by ITCentrix has established that the average reduction in application value would be 9% per year if no maintenance was applied. This reduction is usually offset by maintenance or replacement of applications. Improvement to infrastructure or better methods of application maintenance can significantly help in bringing forward the introduction of new versions of applications or new applications. The value of this improved flexibility is calculated by multiplying the application value by the reduction in application value by the improvement in time to deploy.
Calculating the benefits of reduced risk
The business value of improvement of security reduction in business risk is expressed as the expected reduction in revenue loss. The value is calculated by multiplying the revenue by the percentage reduction by the expected reduction in revenue loss.
Summary of calculating business benefits
Estimating the business value of IT change is not simple. However, by utilizing a simple methodology and using surveys are partial surveys to estimate key parameters, these values can be estimated and included in business cases.