Implementation Failures and ROI

All too often, enterprise software buyers pay insufficient attention to examining the likely achievable ROI of technology they are about to purchase. Wisconsin Technology Network interviewed Leslie Hearn, vice president and CIO of TDS Telecom, on the subject of establishing a strong business case when purchasing software. From the article:

Hearn said TDS evaluates each application in terms cost and revenue. She described a structured process that includes early analysis of the business case long before the company actually buys any software. The data TDS looks at pertains to the kind of human (labor) savings it can introduce into its environment, including licensing and hardware savings from options like virtualization technology, plus ongoing maintenance costs, resource costs, and other out-of-pocket recurring costs.

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Once the business case is made, an important evaluation should occur. What if the savings are less than half of what was projected? Is the software application still worth the investment?

I strongly support the idea of performing a sensitivity analysis on the projected ROI, examining what may happen should the implementation project go over-budget. A typical rule of thumb says that implementation expenses on enterprise software deployments run approximately five times the license cost of the software. (For a thoughtful discussion related to this topic, see Vinnie Mirchandani.) Depending on the situation, it is entirely possible that the actual ROI will be affected by unplanned implementation problems.

ROI projections should address the very real possibility that any given implementation project will not go as expected. If you disagree, I suggest you read this.