How to Accurately Determine an IT Project's Value

An IT project that fails to deliver value beyond its cost is a waste of time, money, and team resources. That's why it's important to estimate a project's probable return at its very start. 

The most effective way to gauge an IT project's value lies in a comprehensive assessment that goes beyond financial metrics, says Robert H. Fortenberry, CTO at IT consulting firm York Solutions, in an email interview. "Rather than solely focusing on immediate returns, it's crucial to consider the project's long-term strategic alignment with enterprise goals," he notes. 

The assessment should evaluate key factors, such as anticipated revenue growth, market expansion opportunities, competitive advantage, and potential cost savings. "By taking a view encompassing both quantitative and qualitative aspects, organizations can make more informed decisions about which projects truly offer the highest value proposition," Fortenberry says. 

Building a Framework 

Enterprises should build an agreed upon value realization framework prior to the project's start, says Shriram Natarajan, director with technology research and advisory firm ISG, via email. Such a framework should be designed to provide business value realization throughout the project's course. It also keeps enterprise leaders apprised of ongoing progress (or lack thereof). "Project leaders should have expectations mapped to the realization framework and the relative weights of benefits scored," Natarajan says. "The value realization formula should be consistently applied across the [project] lifecycle and actively used for decision support." 

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Anant Adya, executive vice president with enterprise cloud services firm Infosys Cobalt, emphasizes the need for meticulous planning and execution, addressing risks and promoting clear communication throughout a project's implementation. In an email interview, he also advises organizations to prioritize real-time benefits tracking and to conduct continuous reviews to ensure that the project aligns with organizational goals while maximizing value. "This approach, focused on transparency, adaptability, and continuous improvement, helps organizations navigate the complexities of IT projects, fostering success beyond traditional metrics." 

Start with a definition and expectation of value in the form of improved business capabilities, increased efficiencies, cost savings, upgrades to security, and risk mitigations, Natarajan suggests. Specific project activities and sequencing should be detailed in the project management plan. Similarly, project champions should identify the early indicators of success as well as potential red flags related to value realization. "This enables the project … realization office to react quickly to increase investments, reprioritize, pause, or postpone the project, if needed." 

Related:Time to Turn Project Management into Product Management?

Essential Tools 

Enterprises should create their value framework -- or have trusted advisors customize the framework -- to meet their specific needs, Natarajan says. Enterprise tools such software asset management (SAM), technology business management (TBM), and processes like FinOps are cornerstones for a data-driven value realization approach, he adds. 

Fortenberry says that several tools and methodologies can assist IT leaders in accurately estimating project value. They include: 

-- Cost-Benefit Analysis (CBA): Quantifies the expected costs and benefits associated with a project, allowing for a systematic comparison of different investment options. 

 -- Return on Investment (ROI) Calculators: Help assess the financial returns generated by a project relative to its costs, facilitating decision-making based on potential profitability. 

 -- Value Stream Mapping: Identifies value-adding activities and bottlenecks within the project lifecycle, enabling process optimization and value maximization. 

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 -- Risk Assessment Frameworks: Evaluate potential risks and uncertainties that could impact project outcomes, allowing for proactive mitigation strategies to be implemented. 

Potential Pitfalls 

Overestimating a project's short-term impact while underestimating its long-term potential is a common mistake, Natarajan says. "The impact should be measured across the years the project will be delivering value to the enterprise." 

Another common pitfall IT leaders frequently encounter when estimating project value is focusing solely on short-term gains or cost savings without adequately considering broader strategic implications, Fortenberry says. "By fixating on immediate ROI or budgetary constraints, organizations may overlook projects with more significant long-term value potential, thereby limiting their ability to innovate and stay competitive in the long run." 

Going Holistic 

In today's rapidly evolving digital landscape, accurately determining an IT project's value is essential for organizational success, Fortenberry says. By adopting a holistic approach that includes strategic alignment, comprehensive evaluation criteria, and the judicious use of analytical tools, leaders can ensure that their investment decisions are not only financially sound but also aligned with their enterprise's broader mission and vision. 

Ultimately, mastering the art of technology project valuation isn't just about maximizing returns, Fortenberry says. "It's about creating enduring value that propels the organization toward sustained growth and prosperity."