A third of CIOs do not measure ROI
According to Information Systems Audit and Control Association (ISACA) survey, 32% of companies that implement cloud initiatives do not calculate a return on investment. That's 10% more than in 2014, according to a similar survey. Why so many companies do not calculate its ROI?
According to Information Systems Audit and Control Association (ISACA) survey, whose goal is to improve the governance of information systems, 32% of companies that implement cloud initiatives do not calculate a return on investment.
That's 10% more than in 2014, according to a similar survey conducted at the time by Information Week.
Why not calculate his ROI?
One-third of CIO do not measure ROI before investing in cloud technology. This is also what Bluewolf reports in "The State of Salesforce" 2017 where 30% of CIOs do not calculate ROI after opting for cloud CRM (Salesforce).
The majority of companies that do not calculate cloud ROI base their investments on purely business objectives, such as improving operational agility and shifting financing from capital expenditures to operating expenses.
More than 25% of companies that have not calculated ROI explain it by the absence of a reliable calculation model. However, more than one-fifth of companies conducted a business case that took into account the expected cost savings of moving to the cloud. Which is slightly different from the ROI.
Indeed financial calculation is only a piece of the ROI. It is important to pay attention to the impact on the employees and the activities of the company, and therefore the benefits that result.
More cloud projects without ROI analysis
Despite the interest of calculating a cloud ROI, the ISACA survey reveals that "compared to previous years, more companies are opting for cloud projects without doing this analysis".
Some reasons “justify” the absence of ROI calculations: either an accurate assessment of the return on investment is deemed unnecessary to validate the investment or non-financial results are increasingly considered sufficient to justify the investment."
A multifactorial calculation
That said, most of companies (68%) investing in cloud initiatives are doing ROI calculations. The most commonly used method for this is a hybrid model that takes into account both quantitative and qualitative factors. We usually find:
- impact of operational costs
- investment expenses
- variation in staffing
- commercial impact (agility, market penetration, time to market)
- transition charges and time savings for employees
Most retain a period of one to five years.
Cloud effect is mitigated
According to the ISACA survey, among 102 CIOs :
- 32% said the actual ROI on the cloud was higher than expected
- 30% said their ROI turned out to be lower than expected
- 39% that their estimate was about right
The differences are accounted by :
- "higher than expected operating expenses"
- "higher than expected transition costs"
- "higher than expected time savings for employees"
A quarter of them said that operating expenses were lower than expected and a fifth of them said that investment spending was lower than expected.
When working for a company, ROI (or financial analysis at least) should be necessary before any investment. Cloud represent such a new and promising technology that many companies forget about how ROI helps in fixing objective, anticipating project life, preventing over-expenses and so on.
Calculating an ROI is not always easy, but always necessary.