There is a dearth of effective tools available for justifying the IT spending. This article explores the business sense of the ROI and presents an alternative framework.
In 1965, according to the US Department of Commerce, less than 5% of capital expen-diture went to IT. But this was to change drastically after Ted Hoff put computer circuits on a tiny piece of silicon in 1968. By the 1980s, capital expenditure on IT had risen to 15%, by the early 1990s it was at 30%, and by the turn of the century it was almost 50%.
It is quite amazing that the single largest item of capital spending has yet to find a widely accepted decision supporting method of evaluation. The use of financial ratios to evaluate IT projects has proved to be inadequate, perhaps even misleading.
To add to the woes, using Return on Investment (ROI) and similar financial techniques, post project, yield results that lead to discussion, controversy and ambiguity rather than the much-needed resolution and closure.
In India, though, IT is yet to become a major component of the corporate capital expenditure budget, since Indian companies spend less than 1% of their revenues on IT as against 8% spent by corporations in the western world. However, the issue is of relevance since India is developing into a major supplier of IT products (mainly software) to the US. |
