Business as Unusual: Develop an ROI Model that Makes Sense

Today’s CIO TODO?  Developing an ROI model that makes sense for our institutions.

I’m not suggesting going back for our collective MBAs.  Nor am I suggesting that ROI is a perfect model for our non-profit higher education model.  I wish I could offer you a universal ROI model that would work at every institution.  Instead, I’m going to suggest a process.

We’ve all had to link our proposals and projects to the institution’s goals.  That was a step in the right direction. But what I want to suggest is that ROI is an appropriate role for governance.  Our governance systems, working with IT and university leadership, are the focal point to ensure the model has broad support across the campus.  If we’re going to measure what matters and we’re going to make decisions about what the projects and programs get funding, the campus needs to agree.

Therefore today’s CIO to do is to start the process of working with governance to make sure that there is a general ROI formula in place that has broad community support.  We are preparing for very complex budget times this fall and we will need not just a general ROI formula in place, but also we need to be able to use the general formula to create a specific one for every project recommended through the governance process.  Since we’re not in the for profit space, what we’re concerned about is more than whether the project returned more than it cost. What we need to know is whether the project delivers the returns we want.  Those returns must be linked back to our institutional goals and they must be measurable.  The return we promise to deliver is the purchase price for that service.  When our financial decision makers can link a cost to a measurable benefit, then they can make investment decisions because they know what they will get in return.

For example, if we’re going to make an investment in a new software product, we need to define what the benefit of that investment will be. If we invest in a student success software package, do we expect to see greater retention?  Better graduation rates?  Encouraging mental health outcomes?  How much is better?  Why do we think we’ll see this improvement?  How soon will things get better?  What decisions follow if we do not see the benefits?  Will we cancel the contract?

Having the governance process define the expectations for our investments has a number of benefits.

First, it builds on the idea that we do things purposefully.  That all of our work must be linked to outcomes that drive the institution forward.

Second, it eliminates the justification for nice to do items.  Our work becomes laser focused on business, not technology outcomes.  A faster network may seem self-evident to us as IT professionals, but why are we spending the institutions money on that instead of say, improving support?

Third, it builds credibility.  With agreed-to ROI, we present ourselves as business partners, who are focused on university-level issues.  That credibility includes using those ROI measurements to show we can hit the returns we say we will deliver.  If we consistently deliver the outcomes we say we will, then it makes it easier for our customers to invest in our work.  Likewise, it makes it much easier to address the value of IT discussion.  How much more powerful is it if we can answer “what is the value of IT” with the data from project ROI that shows we deliver the results sought every time?

Fourth, it engages our vendors.  Once vendors realize there are hard consequences for success and for failure, they have skin in the game after the sale.  Most good vendors already know this, but building the ROI into the contracts as a deliverable that allows for things like performance bonuses or penalties will up the ante.  And there will be no shortage of vendors who want to be able to report to other customers and advertise around those successes.

Finally,  in uncertain times, we operate for the highest and best use of every dollar that we spend to serve our institutions during challenging times. We want our universities to not just survive these times but to emerge stronger and better.  And it isn’t just for this moment we find ourselves in.  We have other challenges squarely in view and if we get better now, we’ll be in a better position to deliver the value of IT as the enrollment challenges of the future continue to challenge our schools.