Value of IT

The value of IT is the answer to a question every CIO is asked sooner or later: what does the business get for its technology spending? Technology supports almost everything an organization does, from serving customers to paying staff, but its contribution is often indirect and hard to isolate. The value of IT covers the financial and non-financial benefits technology produces, and how those benefits compare with its cost.

Demonstrating the value of IT has been a long-standing challenge. In the 1980s and 1990s, economists debated why massive investment in computers did not seem to show up in productivity statistics, a puzzle known as the productivity paradox. Today, technology's importance is rarely questioned, but individual investments and budgets still need justification. For IT financial management, showing the value of IT is what turns technology from a cost to be minimized into an investment to be managed.

Definition of Value of IT

The value of IT is the benefit an organization receives from its technology, relative to the cost of providing it. Benefits can be financial, such as revenue growth or cost reduction, or non-financial, such as reduced risk, better decisions, improved customer and employee experience and greater agility.

Value is always relative to cost. A technology service that delivers moderate benefits at low cost may provide more value than one that delivers large benefits at very high cost. This is why value discussions depend on clear, credible information about what technology costs.

Types of IT Value

Efficiency value comes from doing existing work at lower cost, such as automating processes or consolidating systems. Effectiveness value comes from doing things better, such as improving decisions with better data or reducing errors.

Growth value comes from enabling new revenue, products, channels or markets. Risk value comes from protecting the organization against security breaches, outages and regulatory penalties. Strategic value comes from capabilities, such as digital platforms or data assets, that create options for the future.

Different stakeholders care about different types of value. Finance leaders often focus on efficiency, business leaders on growth and effectiveness, and boards increasingly on risk.

Direct and Indirect Value

Some technology value is direct and measurable, such as the revenue from an e-commerce platform or the savings from an automation project. Much is indirect: technology enables business processes whose results are attributed to the business, not to IT.

Indirect value is real but harder to quantify. Measuring it usually requires agreement with business leaders on how technology contributes to outcomes they own, such as sales growth or customer satisfaction.

Where precise measurement is impossible, credible estimates agreed with business owners are usually more useful than either inflated claims or silence.

Importance of Value of IT in IT Financial Management

Without a clear view of value, technology spending is judged on cost alone. That tends to lead to cuts in areas that create value and continued spending in areas that do not.

Connecting cost to value changes the conversation between IT and the business.

It also gives technology leaders a way to argue for investment, rather than only defending existing budgets.

Moving From Cost to Investment Conversations

When business leaders see what technology costs and what it delivers, they can make informed decisions about where to invest more and where to spend less. This shifts discussions from how to cut IT costs to how to get the most value from technology spending.

Frameworks such as Technology Business Management (TBM) support this by connecting technology costs to the services and business capabilities they support, making it possible to discuss cost and value in the same terms.

The original TBM framework described this as a set of value conversations, about cost for performance, the alignment of the portfolio with business needs, investment in innovation and the agility of the enterprise.

Prioritizing Investment

Organizations have more technology demands than they can fund. Understanding the expected value of each proposal, alongside its cost and risk, allows them to prioritize investments that will contribute most to their goals.

Tracking value after investments are made, by comparing actual benefits with business case estimates, improves future decisions and builds trust in technology proposals.

Value data also helps identify existing services that deliver little value for their cost, which are candidates for retirement or reduction.