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Linking Business Value to IT Investments.

Executive management and boards of directors are increasingly concerned about the business value returned by IT investments. With revenues decreasing, survival will depend on reducing costs to provide care and HCOs (healthcare organizations) will want guarantees that IT investments will deliver the value they expect.

IT has delivered value in the past, but failure to link the business value delivered to the expenditures has minimized IT's credibility. It is becoming imperative that the IT organization takes a more businesslike approach to managing expectations by measuring and communicating the value that results from IT investments.

Communication requires that the IT organization first understands the environment in which IT tools are applied and, secondly, communicates the impact IT tools have on the business processes. As the impact occurs, the IT organization must measure the impact in business metrics that users and management can relate to, communicating those business metrics throughout the HCO. Additionally, the IT organization and the HCO must change how they view the role of IT in the HCO; no more "IT projects" because they are "business change projects."

IT "Buyers"

The old adage "he who pays the fiddler calls the tune" emphasizes this truth: Executive management is the "buyer."

The funding bodies are the "buyer" of the proposal to invest in IT tools. One of the major requirements in obtaining concurrence of decision makers is understanding the subjective environment in which they make decisions. Ideally, the decision maker perceives the request the same way as the requester. If the perception is different, the requester must reconcile the differences.

Approaching decisions as a quantification of benefits and costs assumes that the perceptions of both parties are relatively close, which may not be the case. Decisions fundamentally start with a perceived value. If the cost is less than the perceived value, interest rapidly moves to the question: "Are funds available?"

Quantification of costs and benefits can shape perceptions, but only when the decision makers' perceptions are close to those of the requester. Thus, shaping the decision makers' perceptions has much greater impact on the decision prior to detailed quantification of benefits and costs.

For example, most people do not own a copy machine in their homes, but they often own cars. Although a car is much more costly than a copy machine in absolute dollars, the perceived value of a car is much greater than the perceived value of a copy machine. Rather than focusing on the absolute amounts, perceptions focus on the gain first. The absolute costs are secondary.

Measurements

Quantifying the business value of IT requires measurements, but what should be measured? The real value delivered is not captured in typical IT metrics like response time and hardware utilization. Real value must be expressed in business terms and from the perspective of management and end-users.

The HCO wants to know the impact on efficiency, effectiveness, productivity and quality in terms of expense reduction, increased revenue and return on investment (ROI). For example, response times are an IT metric that seldom relates to the work performed using the IT tools. Duration of a registration, on the other hand, relates to the work performed by users and is meaningful to management. The number of registrations is typically a business measurement. Reducing one screen display has more productive impact on the total registration time than consistent subsecond response, further illustrating the downstream value of business-focused measurements.

Aligning IT measurements with the business measurements is critical to establishing the business value of an IT investment. While measuring the right results is key, communicating the measurements is more critical. Users and management need to be reminded of the role of their IT tools on a periodic basis. Since IT tools provide an expected service, disruptions and outages are more noticed than normal usage. Periodic reporting reminds users and management of the context for the overall productivity (how large) and provides a common reference point for service-level discussions (how well).

Communication

Communication is critical throughout the life of a business initiative. Executive management must clearly state the business need to be met and the business result expected. Users must be continually reminded that they are accountable to deliver the expected results. Executive management must be clear on accountability, and operational management must ensure that the results are delivered.

In return, the users must take ownership of their IT tools and how they will use those tools to deliver the expected results. Operational management must take the lead, reinforced by the IT organization that is the users' partner. The users must accept IT tools not as perfect but as adequate to deliver expected business results. Business users must be accountable since they, not the IT organizationl operate the IT tools, but the IT organization must be the users' partner with advice and suggestions.

Creating Value

The only reason to invest in IT is to improve the business. As the IT/business relationship matures, technology's promise is replaced by technology's value.

When demand for services is high, IT can increase revenue through increased productivity with the same resources. IT can reduce expenditures to provide the same or a better level of service with fewer resources. IT tools can improve skills and change users' behavior. IT tools create a better understanding of the business being performed so decision-making improves.

IT tools will never be perfect and should never be evaluated on their own; they should be evaluated in the context of their business impact. An 80 percent solution will almost always improve the business. Business gain today with adequate tools is worth far more than waiting for the perfect tool tomorrow.

James M. Gabler is the research director at Gartner, Phoenix, AZ. He is also a member of the HMT editorial advisory board. Contact him at jim.gabler@gartner.com.
COPYRIGHT 2001 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2001 Gale, Cengage Learning. All rights reserved.

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Title Annotation:Industry Trend or Event
Author:Gabler, James M.
Publication:Health Management Technology
Geographic Code:1USA
Date:Feb 1, 2001
Words:962
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