4 Key Metrics for Prioritizing IT Spending
Infrastructure improvements, expanded cloud adoption, enhanced cybersecurity and advanced analytics are expected to be among the top IT priorities in 2022 as companies around the world continue to refine their visions of the future of work. Gartner analysts expect IT budgets to grow by 3.6 percent — the fastest rate in more than 10 years.
However, it’s one thing to identify broad IT trends; making specific spending decisions is something else altogether. As business owners, officers and boards begin shaping their IT budgets for the coming year, they must develop a fact-based methodology to ensure they spend their dollars wisely and make progress toward their business goals.
IT metrics and key performance indicators (KPIs) can provide a framework for making IT investment decisions. These are quantifiable measurements that help business leaders establish priorities and evaluate the value technology projects are expected to deliver.
Unlike the days when IT projects were largely judged on operational data such as feeds and speeds, companies today require metrics that demonstrate IT’s alignment with business imperatives. Here are four key measures that can help illustrate the value of IT initiatives and support the budgeting process:
Return on Investment: ROI is a key financial metric used to calculate the profitability of any investment. It’s typically used as a lagging indicator that measures performance after the fact by comparing the gain or loss from an investment relative to its cost. However, an ROI perspective can also be used to anticipate the impact of an IT investment. It requires you to define your goals for a project, whether it is increasing production, improving efficiency or reducing risk or costs, and then make some informed assumptions about expected gains. It can be used to make comparisons between anticipated gains from multiple projects to help prioritize investments.
Business Value: This is an increasingly important metric for demonstrating IT’s alignment with the business. It can also be used as both a lagging and leading indicator, either to calculate value upon completion of a project or to demonstrate progress during the project lifecycle. It is typically derived through a combination of tangible and intangible benefits such as revenue, cost reduction, profitability, customer satisfaction or market share.
Infrastructure improvements, expanded cloud adoption, enhanced cybersecurity and advanced analytics are expected to be among the top IT priorities in 2022.
Customer Value: The success of any IT initiative is largely determined by how customers respond to it. Developing a useful customer value metric will usually involve evaluating multiple factors such as churn rate, new accounts, monthly recurring revenue, revenue per customer, purchase frequency, customer satisfaction scores and the length of the customer relationship. Customer-focused metrics are invaluable for helping companies understand what they’re doing well and what needs correcting.
Percentage of Budget on Innovation: This is an important metric for evaluating what IT is doing to grow and transform the business. The need to support remote and hybrid workforces and changing business models is forcing IT to shift away from monolithic IT architectures toward more agile and independent microservices. This metric can help companies understand if they are spending most of their IT budgets to “keep the lights on” or if they are doing enough to stay abreast of rapidly changing markets. It may also help companies understand if outdated legacy IT systems have become a drag on growth.
GDS Virtual CIO
Calculating these and other metrics can be time-consuming and labor-intensive, particularly for smaller firms that don’t have a Chief Information Officer (CIO) to drive the budgeting process. The GDS Virtual CIO service can provide you with ready access to an experienced technology executive who can help establish a budget using key metrics and KPIs.
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