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Are your technology investments paying off?

MANUFACTURING INSIGHTS  | 

If you're like most manufacturing and distribution organizations, you probably have more IT needs than dollars budgeted to support your initiatives. As a result, prioritizing your IT needs relative to the overall strategic business needs is imperative. You should make choices based on sound, logical analysis relative to business needs and objectives. Furthermore, it is also vitally important that the planned return on investment (ROI) is actually realized.  ROI analysis is a strategic component of effective risk management programs.

Analyzing technology investments

A methodical approach to analyzing your technology investment can help ensure the real costs of your investment are considered and expected benefits are achieved. A formal process also helps ensure your IT investments are strategic and support your organization's business plan. This approach should include the following:

  1. Strategic business alignment

    Before acquiring IT assets, one must first determine if these new IT assets will support the strategic business objectives of the organization. Proper alignment of technology investments with the strategic plan of the organization increases the likelihood of realization of projected return. Acquiring additional IT assets that do not properly align with the strategic business plan or more likely to not return the projected value to your organization and also are more likely to fail in general.

    As part of developing the business case and creating the Return on Investment (ROI) model, you should consult with your key stakeholders. Conduct a SWOT (strengths, weaknesses, opportunities, threats) analysis that focuses both on technology and non-technology related topics. In many organizations, the feedback received not only helps create a solid business case to acquire IT assets, but also serves as a solid indicator of future technology requirements. In addition, surveys can also be used to provide an understanding of how your end users leverage technology to do their jobs.

  2. Secure executive sponsorship

    There are a litany of failed IT projects every year across the world and many millions of dollars are wasted due to a number of factors. One of the key reasons behind IT project failures is the lack of appropriate executive sponsorship of IT initiatives. Executive sponsorship enables and sustains alignment between IT and organizational objectives.  With clear alignment of IT and organizational strategy, executive leadership will view and support IT investments as a strategic enabler and not just another cost of the organization. 

  3. Understand your current IT environment

    For many organizations, when management steps back to review operational processes and related technology needs, they discover a myriad of systems. Each department and division has its own processes, languages, forms and requirements.

    A key step in performing a technology investment analysis is to make sure you understand your existing IT environment.  Areas to examine include: 

  • Existing technology - Which systems are essential and how do these systems align with your people, processes and strategic business plan?

  • Availability and usability – Systems and applications must be available to users when needed. Performance, planned and unplanned downtime, and insufficient remote accessibility can negatively impact productivity.

  • IT support - Does your team have the right skills and tools necessary to meet your needs?

  1. Evaluate alternative technologies

    Once you have assessed standard infrastructure and systems that will be impacted as a result of fulfilling your anticipated business needs, you'll need to identify the specific technologies you need. Note that these technologies may not result in a direct investment for one, two or even three years. However, foreseeing the need can dramatically improve total cost ownership (TCO) because all interim IT investments can be made with knowledge of these impending solutions.

  2. Calculate total cost of ownership

    TCO consists of the costs incurred throughout the lifecycle of an asset, including acquisition, deployment, operation, support and retirement. The high costs are due to the essential, difficult and generally overlooked task of looking at the big picture impact associated with every technology component purchased.

    It is obvious that ROI or TCO analyses should never be used to rationalize the wrong technology. Therefore, these tools should only be used for financial justification and/or comparison of multiple options, after a formal process of identifying the right technologies. The right technologies address immediate and anticipated business needs.

Conclusion

Information technology has been and continues to be an integral and defining factor in the day-to-day operations of today's organizations. It is always important to maintain a focus on the role technology plays in your company's success, the creation of value while ensuring the return on investment is realized.

Dean Lemons, McGladrey Principal, Risk Advisory Services and Steve Hunt, Director, Risk Advisory Services.