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Business decision-makers want to be assured that new technology deployments will yield a return on investment that makes the project a worthwhile endeavor.
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As business executives look at upgrading their systems and assess emerging technology, ROI is typically an important component in making a business case for the need to buy new IT systems. Channel partners, however, have noted that there are many factors that make it difficult to calculate ROI. This complication raises a question: How important is ROI to channel partners' ability to sell customers on a project?
Mark Cavaliero, CEO of Carolinas IT, a managed IT services firm based in Raleigh, N.C., said there are IT projects where ROI is easy to quantify. For example, if file services are slow, an upgrade would save x minutes per employee per day: Multiply the number of employees times the cost per minute, and you've got some good numbers, he said.
With networking projects, however, technology ROI calculations can be more challenging.
"Complex network upgrades impact an organization at multiple levels and touch points," Cavaliero explained. "Multiple systems are involved, and each has its own effect on workflow and productivity. Analysis of each impact takes considerable time and effort, and requires open communication with clients who are usually hard-pressed for time, and may be dealing with several vendors at the same time."
Aric Bandy, president of Agosto Inc., a cloud services and development company based in Minneapolis, said there are two types of ROI: hard and soft. A hard ROI includes clear, tangible costs such as software licenses and hardware. Hard ROIs are more financially defendable because they tend to cover true cost displacement. Some hard ROIs can be more challenging if the license costs are obscured.
Bandy noted that soft ROI includes less tangible expenses like labor, efficiency and opportunity cost, which are harder to justify but often yield real value for an organization.
"For instance, Google G Suite may be a 25% license cost, but the real value is in successfully getting users to collaborate in real time, and spending less time searching for documents," Bandy said. "Soft ROIs are just as important as hard ROIs but are often more difficult to reconcile."
Tools for determining technology ROI
Aric Bandypresident, Agosto Inc.
With regard to customer size, Bandy said he's noticed that generally small-to-midsize businesses (SMBs) need more time with a financial ROI model, while enterprise customers tend to have their own ROI tools for determining internal rate of return.
A recent CompTIA study found 83% of the SMB executives surveyed reported using some type of formal or informal approach for assessing technology ROI. A closer examination shows that 46% use general cost-benefit templates or tools, 38% use informal assessments such as ballpark estimates, 34% use business plan templates or tools and 21% identified formal tools such as ROI calculators and frameworks.
CompTIA's data, based on interviews with 600 SMB executives, also showed that six in 10 SMBs rate the ROI of the technology in use at their firm as good or excellent, while 40% said the results are just okay or disappointing.
In his analysis of the numbers, Tim Herbert, CompTIA's senior vice president of research and market intelligence, said he thought SMBs would score the ROI from the technology used at their firms much higher.
"When you think about the degree to which technology delivers more value, more computing power, more storage, prices have continued to decline, and the number of open source options has grown, you could make the argument that ROI or perceptions of ROI should be higher," Herbert said.
According to Herbert, there are many challenges in assessing ROI and for some technology projects you may never accurately calculate ROI, but such a challenge presents opportunities for channel partners to have a discussion around the most important variables that should be considered when assessing ROI.
Moving beyond ROI
Cavaliero said one way around the ROI issue is to talk with the client about how the project will impact the business and its employees. He added that IT providers should find out what is important to clients, why they considered the project, what problems they face in their business, and what factors could be improved. By doing this, IT companies can create a two-way conversation that highlights reasons for moving forward with the project that are more powerful than any technology ROI estimate.
"We find that having an actual conversation with a client is the best way to go instead of coming in with a truckload of numbers," Cavaliero said. "We use ROI as one input in the decision-making process, along with other factors such as employee morale, network security, stability and scalability. Sometimes these inputs can't directly be quantified in terms of numbers, but successful clients are usually adept at making decisions based on their analysis of the entire situation."
"Customers come to MSPs because they have a need and the need must be filled, and that could be a regulated customer, it could be a customer that has a strategic business IT problem that needs to be fixed, and in those cases they are not doing an ROI evaluation," Weaver said. "They are just saying, 'I can't have my server go down or my business will fail, so I am going to outsource it and I'm going to outsource it to someone who is going to keep it running and that's all I care about.'"
Bandy added that channel partners should keep in mind that ROI is a tool for determining the financial impact of a decision -- not necessarily the strategic impact.
"It becomes damaging when the ROI is overly weighted in the decision-making process," Bandy said. "In other words, the product with the greatest ROI may not be the most strategic. Stated another way, there's a difference between value and cost. ROI only gives you a picture of cost."
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