Two Measures to Demonstrate Your Performance

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Posted on July 18, 2012 by Bruce Stewart Posted as Blogosphere Discussion

Once again enterprise IT budgets will be buffeted by events.

It doesn’t matter how well your enterprise is doing, or how well you’re doing. Global economic storms are about to rule as they did in 2000 and 2008.

How can IT leadership demonstrate they’re delivering results and thereby make sure the knife doesn’t fall on them?

Two measures should be part of every presentation you make: Total Cost to Own and Operate (TCOO), and Actual Return on Investment Obtained (AROIO).

Think of these as the IT equivalent of earnings-per-share and profits.

TCOO is a measure that should fall from one year to the next. Your platforms should be getting cheaper on a unit basis.

Whether you bring it down by switching operating systems, virtualizing, sending work to a business process outsourcer, buying an -as-a-service solution, changing packages in use, forcing your telecom vendor to pass on savings others are getting or any other technique doesn’t matter. TCOO aggregates your entire portfolio and judges whether or not you’re capturing enough of the market’s steady improvements.

It’s also a measure you can go back and calculate for prior years, thus presenting an immediate trend line for comparison.

AROIO is the tougher one to implement, but the one that really helps with the argument to chop elsewhere and let IT do its job.

Every project that gets approved and released has a projected ROI. AROIO is concerned with what actually happens.

Given that a quick look at public company filings (10-Ks or equivalent) don’t show anything near the 15%+ returns annually that the average “clip level” for ROI to get approved would indicate, that means AROIO is usually less — a lot less, in most cases.

Lag time between plan and firing the starting gun eats into ROI. Project delays and overruns do, too. So do deployment issues, solving the wrong problem (despite fulfilling all the requirements) and failing to make workplace change.

But driving a growth in AROIO, and a reduction in TCOO, means you’re delivering results that end up on your enterprise’s bottom line. (They’re also measures a Governing Board can use, because they deal with the business impact of IT decisions.)

Now — before the crunch comes at year end — is the time to get your story out there.

Bruce Stewart Bruce Stewart (99 Posts)

Bruce Stewart is a 39 year veteran of IT management and above. He is an executive advisor serving CIOs and senior executives in areas of governance, strategy, complex architectural transitions, portfolio yield and value generation.


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  • DonSheppard

    Very good metrics……not always easy to calculate, especially wrt total cost to operate.

    I wonder what % of typcial TCOO is people costs, and whether these decrease much on a year by year basis when compared to the technologies.

    It would be nice to have another metric that covers “innovation” and how much the business benefits from innovative IT developments.  For example, possibly BYOD doesn’t reduce TCOO and doesn’t produce significant AROIO but perhaps it pays off in other ways and allows further innovation later. 

    • http://twitter.com/BruceStewart Bruce Stewart

      I’m still trying to work out a way to deal with innovation. Your observations that it doesn’t readily show up in either AROIO or TCOO is quite correct. (However, AROIO and TCOO are proving themselves helpful enough to be worth talking about.)

      People costs are definitely meant to be in TCOO. Since your TCOO is based in things you control, the people costs involved come from what you’re paying — labour charges for staff, and contractor costs for external services brought in. Keeping an eye on that external labour market and how its rates are shifting is an important part of mapping future TCOO curves and recognizing a need to consider reinvestment to leave a lagging (and therefore growing more expensive to find talent) technology behind.