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May 22

The CFOs Perspective on the ROI of IT

Posted by jimfinnan97 in Untagged 


CFOs today are focused on payback when making investments in IT. The current global economy is making it difficult for many companies to compete and win market share in their industry so investment in technology that leads to innovation and collaboration is more important than ever.

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Cloud, big data, analytics, social media and other disruptive technologies can offer huge opportunities for CFOs and CIOs to help their organizations collaborate to work better, smarter and faster. The CFO though in many cases is not so quick to pull the trigger. CFOs feel the need to first consider some of the challenges in cost justification of an IT investment.

The biggest problem faced today by many CFOs and CIOs is that many corporate boards will not even consider the funding of a large project unless the return on investment is well defined and has real positive payback period. What is the proper ROI on a large project that will cause the CFO to make a strategic investment?

According to Paul Nastro, CFO of Network Adjusters, the return from the investment should significantly outweigh the cost outlay by about 5:1 or greater over a three year period. This ROI expectation seems reasonable given the current low cost of financing large internal projects.

In a recent survey, Forrester Research discovered that the CFO continues to actively participate in technology acquisition, largely because companies are implementing new systems only if they feel confident that they will recover the investment in a relatively short period of time.

Some technology vendors in trying to rapidly close on a large technology sale have been very helpful to CFOs with the calculation of the ROI for a specific investment. These vendors now offer content calculators and assets such as "Top 10" lists of ways in which their products pay off as well as independent seals of approval from various consulting groups. Some of those sales efforts are often useful to the CFO but more often they are just a small part of the cost justification and ROI calculation process.

The role of CFO as a cost cutter and the primary IT decision maker for larger technology acquisitions dates back to about a decade ago. At many organizations the critical systems and applications preparations for the events surrounding Y2K and mandatory compliance issues produced a big rush to move into E-business initiatives. This had the effect on the CFO of forcing them to forgo the typical ROI analysis trend for a while.

Today, the CFO has once again brought the diligence to the C-Suite as the one whose analytical financial skills and focus on the cost of systems implementation not only augment decisions, but determine them. According to Paul Nastro, “Organizations will invest in technology in pursuit of revenue growth, but they are closely watching expense items that can potentially impact the bottom line savings achieved as a result of technology implementation.”

Not only CFOs are guided in the IT purchase and decision making process by the ROI but most CIOs value ROI as well. Recently a joint survey by Gartner and the Financial Executives Research Foundation found that 42% of the IT organizations top person - the CIO, reports directly to the CFO. The percentage increases to 60% at smaller businesses - those defined as companies with revenues between $50 and $250 million.

In addition, the survey pointed out that CFOs approve 26% of all IT investments, while CIOs approve a mere 5%. This is most likely due to the current state of the global economy as in recessionary markets the CFO must keep a close eye on all expenditures.

Some in the C-Suite believe that this renewed focus on ROI will bolster the CFO-CIO relationship. What is certain though is that a tighter rein on IT spending has triggered more communication between CFOs and CEOs.

Given the current CFO-CIO relationship and constrained IT spending, everything is under close scrutiny by both the CFO and the CIO. It will be interesting to see how the reporting dynamics shift over the next few years as cloud computing adoption really entrenches itself in most organizations and the ROI become more apparent. As the current economy continues to improve and companies invest more in growth-oriented projects, this should give CFO and CIOs an opportunity to collaborate effectively on all ROI decisions.

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