Measuring ROI of Software Investments
With advent of cloud computing, all companies are striving to move from on-premise software hosting model to cloud based softwares. CAPEX to OPEX is a term that is used pretty commonly by enterprises to justify the need to move to the cloud. CAPEX to OPEX move is actually very good in the long run as the OPEX can then be pushed back to the individual Business Units or LOBs so that the effectiveness of the use of the software can be measured and most importantly individual businesses can be made accountable for these costs as well.
While the accounting treatment is a nice benefit, one area where we think enterprises still lack is the ability to track the Return on Investment (ROI) of the software investments. In our opinion, ROI is a continuous process that needs to be constantly measured, monitored and fine-tuned. With most companies trying to technology enable their core processes and technology becoming the fulcrum of everything that the company does, it becomes all the more important to ensure the ROI is properly measured. People generally tend to associate ROI as the end objective of an investment – we strongly believe ROI is just a means to an end, meaning ROI is not a one time metric but instead something that is time bound, continuous. If a company can report on ROI effectively, that itself showcases the process maturity – many a times just having a process to showcase a negative consistent return (ROI measurement) is so much better than a manual ROI metric showcasing a positive return
ROI measurement is hard as it consists of both Tangible and Intangible metrics. For example, if you are investing in an ERP software, ROI can be measured either in-terms of reducing in collection times or number of expense reports coming on time etc, which are all tangible and measurable (still hard as each metric needs a baseline which many enterprises don’t). While the same ERP software could provide intangible benefit in terms of faster collaboration or better decision making due to more information becoming available real time. ROI requires a lot of process streamlining to ensure all the KPIs are available and measurable – very similar to what we had mentioned in our Management By Metrics post.
We at QuarkCube believe, if you are able to measure ROI, then it’s a direct reflection of how process efficient the organization is. Process efficiency will reflect in the consistency and accuracy of metrics which will make the ROI measurement and evaluation easier. And most importantly, a strong Performance Foundation software is needed to track these metrics that will drive efficiency and consistency. QuarkCube is rightly positioned to help customers through the ROI measurement journey.
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