In my last post I argued that ICT understands the cost of everything and the value of nothing, and that this is a fundamentally cynical position to take and that “focusing on ways and metrics to calculate the value of the ICT we deliver has got to be the way forward”. Well, that’s easier said than done.

But hey, whatever, I’m going to have a crack at it. Maybe it can be developed further by people who know better than me.

The basic discipline which focuses on return on investment is management accounting. I have no qualifications in this (it’s going to show) but it seems to divide into two areas: the return on investment in individual projects (expressed as Net Present Value, a way of comparing the return on a project to its opportunity cost as baselined against the standard interest rate) and Portfolio theory, a way to look at a basket of investments and choose the components of that basket in a way that offsets risk whilst maximising returns.

Both of these seem to work as advertised when the return on a particular project can be calculated. I invest £100 in the stock market, I get £110 (or £90!) back 6 months later. The NPV (Net Present Value) calculation compares that return against what would have happened if I had simply invested that £100 in a bank savings account.

If I had lots of £100 investments, Portfolio theory looks at maximising the return and minimising the risk. Perhaps I make one investment in an umbrella manufacturer and another in a company that makes sun cream, this minimises the risk that extreme weather will wipe out my entire portfolio.

OK, so both of these descriptions are crude. Let’s try not to get too hung up on it. What’s it got to do with computers? Because that’s what I’m on about.

The problem here is that it’s complicated. If I have a set of computers in an office with a load of different applications running on them, how much value does that deliver? Does application A deliver more, or less, value than application B? If I spend £100 on an upgrade to the network so that everyone takes 5 minutes less to log on, what’s the return on that investment? Does everyone create (hourly rate x 1/12 x number of staff) more value as a result? Do we even know how much value a person creates in an hour, especially if they are in a support function rather than delivering a front-line service?

One common way of understanding the value a business proces can deliver  is to use a capability analysis  (my colleague Carl Haggerty is thinking about this a lot right now). This is a measure of the ability of part of the business to fulfil some kind of value-creating function. That stuff is very useful but I want to deal with it another time, and just make a more general point about measures of the value of something a business does.

I think “value” is a whole load of different measures. By that I mean that it has several interacting components. A person who works in a bank selling mortgages creates a number of different types of value:

  • profit (through the stuff they sell)
  • brand (through customer service)
  • support services to other team members (eg going to get coffee for them)
  • environment (because they are in the branch, the branch is open and this gives an intangible network-effect to other shops in the same high-street)
  • marketing and market research (through talking to customers they can gain intelligence about the market)
  • and so on.

We can see that, even in a small, straightforward business it is going to be difficult and complex to calculate value.

However, we need to have a go. So, I propose that:

  • in front-line services, “value” is calculated by measuring direct service outcomes
  • in support services, “value” is measured by aggregating the added value those services contribute to front line services.

ICT is almost always a support function. So its value is linked intimately to the value delivered by the front line services that it supports.

So to understand the value of ICT, you first need to understand the value of the front line services. The value added in terms of ICT can only be expressed in these terms to be even remotely meaningful.

And for some additional added value, the sooner the ICT department starts talking in the same value-terms as the front-line services, the better.

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