Branimir Valentic Let’s be honest – IT people and financials don’t like each other. One would say – two separate worlds. Actually, it is so. Different data and different kinds of activities equal different mindsets. We could elaborate on this from many angles and points of view, but, from my experience, they are cross-connected on many levels (no matter if they are aware of it or not). Elaborating about facts, do you know what will be among the first questions you will be asked (as the person responsible for IT Service Management (ITSM)) once you try to present ITIL implementation to your management?
- “Does it pay back?”
- “When?”
- “What are the savings?”
- etc.
So, this is how we get to a very popular expression in the financial world – Return on Investment, i.e., (as seen through the eyes of management) how fast the company will see benefits (expressed, as much as possible, in financial terms) of the ITIL implementation. Now, you ask yourself whether ROI can be calculated. And, first of all, what is it and what should be included?
ROI calculation – What is it and what to include?
ROI calculation is, basically, a cost-benefit analysis of your ITIL implementation. What the ROI calculation needs to achieve is to understand the true cost of implementation and whether this investment makes sense for your business. Now we get to the first issue – tangible and intangible benefits, i.e., savings. Tangible benefits or savings include those items that you can point to and say: “That’s what we achieved.” I’ll spend more time on them later, but first let’s see the intangible benefits. Intangible benefits include increased (or lost) reputation, increase (or decrease) in customer satisfaction or even the satisfaction of your own staff, etc. What is common for intangible benefits is that they are hard to measure.
Tangible benefits are easier to see. Namely, they can be expressed in some measurable unit. So, here is what you can include in your ROI calculation (and you will find most of the information inside your own organization):
Human resources – more people mean more costs. The other issue is to know what your employees’ costs encompass. With help from the controlling or financial department, that shouldn’t be a problem. Increased efficiency (by implementing ITIL) should lower human-related costs.
Services and related data – it’s important to know which services you have, how many users you have and which services they use, the average service downtime, etc.
Incidents – this is one of the most important parts of the calculation. You have to know how many incidents you have, how much time (estimated values) you use on incident resolution, what is the affected number of users, etc. In that way, you will calculate your effort as well as loss in productivity of the users.
Problems – when you have a disorganized team working on the root cause analysis (remember, that’s the goal of the Problem Management process), a lot of time is lost. But, getting problem resolution in order is your chance for a quick win. Why? It’s because the people involved in problem management are your best, and, usually, most expensive experts. More important, successfully implemented Problem Management will prevent future incidents, and that equals savings.
Change Management – changes, particularly unsuccessful or uncontrolled ones, are among the major causes of new incidents (and uncontrolled costs). A managed, controlled, and well-defined Change Management process can gain significant savings, both directly (time to implement change, no re-work is needed) as well as indirectly (cost to resolve incidents caused by unsuccessful changes).
Service Level Management (SLM) and customer relations – imagine (or maybe this happened?) that your unsatisfied customer cancels the Service Level Agreement (SLA). So, this is a potential loss. If you have several such cancellations, use the average value.
Once you have the needed information, calculate as many related cost savings as possible. For example, if you have Incident, Problem, Change, and Service Level Management in place – don’t skip any of them. All of them have valuable information. Also, be careful to use the same unit for all processes, e.g., costs expressed in USD/month. You know your Incident Management staff costs (on a monthly basis) and your tool tells you how many incidents in a month you have. So, it should be possible to find an average incident cost per month. Read the article How to translate ITIL/ISO 20000 language into business language understandable by your management to help yourself while talking to the management.
Just an estimation, or…?
As you can see, it’s not right to claim that all parameters you enter in the ROI calculation are fixed and easily justifiable. Quite the contrary, many of them are just estimations. But, that’s fine as long as the estimation is made on your company’s real data. If you have an ITSM tool, that shouldn’t be a problem. You can prove all of them, so it’s worth it to use them.
Although not a perfect calculation, ROI is something your management understands, and is therefore worth the effort. Besides the fact that they will (once you present the calculation) know how to use the saved money, they will increase their trust in the (ITSM) manager who has its financials firmly in hand. So, when asked: “Is it worth the investment?” – you are ready.
Use this free ITIL Return On Investment (ROI) Calculator to calculate your ITIL implementation ROI.
