Choosing Methods

Choosing Methods

Many managers want their ROI efforts to lead to metrics that help them track, reward and motivate staff. Consider methods such as the eStrategy Balanced Scorecard (from Mainspring and the Balanced Scorecard Collaborative, Inc., a Lincoln, Mass.-based consultancy), which starts with justification of the initial project but is designed to remain useful throughout the life of the project by providing metrics and incentives for managing the implementation. The method begins by identifying the desired economic results of a new e-business strategy and then focuses on creating the activities necessary to achieve those results, says Mainspring's Hancock.

The second key question: Do you prefer the view through the windshield or the rear-view mirror? Valuation methods tend to be either forward-looking or retrospective. Economic Value Added (from Stern Stewart & Co.), Economic Value Sourced (from Meta Group) and The Customer Index (from Accenture) can be used to pinpoint the value of an investment at a fixed moment in time, based on financial performance over a specific period. As such, these methods can be very useful for conducting regular reviews of past performance and making decisions about enhancements.

To be meaningful, however, these tools require actual numbers, not projections. This makes them more difficult to use as part of building the initial ROI justification for an individual e-business project.

Indeed, some of these methods are limited to situations in which a new e-business system is designed to enhance a company's existing strategies. Once they're implemented, the value of such investments can be more easily isolated.

But when a company is investing in e-business in hopes of radically reforming the company and its products through innovation, "managers quickly realize that traditional tools don't help that much because they are fixated on predictable and obvious outcomes," says Adam Borison, a partner at PricewaterhouseCoopers in Menlo Park, Calif.

PricewaterhouseCoopers' Real Option Valuation method is designed to go beyond the tangible near-term results and put a value on future possibilities. The approach—derived from financial techniques for valuing options contracts—puts a value on the flexibility of the system, the options it opens up for the company and management's ability to leverage those options.

The advantage of all of these new methods over the old ones is that they try to capture the often intangible, "soft" benefits of an implementation. Each approach has its limits, but they all can provide insights into the impact of a company's bottom line. Regardless of the method used, the key for CIOs is to begin with the goal in mind—the new system's desired impact on the company and its revenues and costs.

This article was originally published on 05-01-2001
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