Justifying IT Investment

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This article gives you the arguments to deploy when making your case for spending. Many of these arguments apply equally to investment in non-IT projects.

Always talk about investment rather than spending. It puts a more positive gloss on the discussion.

The following are the arguments you could use. These apply whether you want to buy a new computer or a complete business system:

Financial justifications

The easiest project to justify is one that will save you money, whether by cutting jobs or replacing outsourced costs.

Alternatively, in a growing company, the investment may allow you to delay recruitment that would otherwise have taken place.

In these cases you can put forward a case using discounted cash flow, payback or whatever else is your company’s standard for justifying investment.

However, for most IT investments, there isn’t a straightforward financial justification & you need to think around the issue a little more.

Time saving

If employing a person costs £40k per year and this person wastes an hour a day on an inefficient task, that costs around £5k per year. Saving this money can be compared to the cost of investment.

The weakness of this argument is that the £5k isn’t a real saving. Making the improvement won’t allow you to reduce the person’s hours and cut their salary.

You may therefore have to make the argument that, over time and with a programme of improvements, the cost of the finance department grows at a slower rate than its workload and that this saving, taken in combination with others, is real.

Eg, if a company grows by 20%, the demands on the finance department may grow by 10%. (Some tasks only have to be done once a month, regardless of the size of the company, so you can’t claim that demands on the department grow in line with turnover.)

If you can demonstrate that costs have only grown by 8%, due to efficiency savings, then you can argue that the finance dept costs are variable and the £5k reduction is real, although it doesn’t come in one hit at one time.

Convenience

Time spent searching for information is time wasted. Money spent on IT can reduce this inconvenience. This argument can be particularly powerful if it is senior management that are being inconvenienced.

For example, retrieving paper files from archives can be a very inefficient job. Investing in a computer and database to organise them could dramatically reduce the trouble involved in retrieval.

Reducing distractions

Sales people should focus on selling, buyers on buying and so on. These people should not be spending their time writing reports or handling data. Any IT spend that allows them to use more of their time on value-creating activity has to be a good thing.

Professionalism

Hand written documents, poorly laid out invoices, inability to reply quickly to queries. Anything like this is very bad for the company’s image and can be removed with some IT investment.

Staff motivation

Working with poor IT can be very demoralising for staff and contribute to high turnover rates. Working with the best systems makes staff feel better about themselves and the company, giving better motivation and performance.

Customer service

If a customer calls with a query on his order or delivery and the person speaking to him isn’t able to get a quick answer, it sharply reduces your chances of getting the next order. IT systems have to be able to convince the customer that he is dealing with a modern, well run company.

Competitive pressures

If competitors are taking steps forward with IT then a company may need to invest itself just to keep up with them. An example of this is the pace with which banks had to respond to the challenge posed by internet banks.

Automation & accuracy

If errors and inaccuracy are common in the company’s output, use of IT should be a way to stop this.

Conclusion

Most IT investments can be justified under one more of the above headings. If you aren’t able to apply any of these arguments, then you probably shouldn’t be making the investment.

Actually delivering the benefits used to justify the investment is, of course, a different story.

Key Points

  • Investment in IT is often needed to improve operations in the finance area
  • There isn’t always a straightforward financial justification
  • Non-financial arguments for investment can be equally powerful

Source by Steve AH Lloyd

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