Management of cost and value from IT projects

Pricing for profit is increasingly dependent on IT capabilities. This is partly because more accurate pricing requires transparent process costing, and IT services are an increased proportion of process costs. This means that both production transaction costs and IT investments must be identified and calculated. Where pricing calculations form part of an investment decision, IT costs (local and shared) should in principle form part of a business case and ROI calculation. Although this may sound obvious, few IT investments are assessed in this way.

Business gets value from IT projects in four main ways: efficiency, effectiveness, market expansion and advantage creation. Efficiency and effectiveness create value by automating business processes, making them more efficient (using less resources) or making them more effective (leading to greater impact). Cost reduction pressures have been the traditional justifications for IT outsourcing and cost reduction (the traditional 'your mess for less' strapline). Market expansion and advantage creation represent innovation value, now considered as the main differentiator for new-style IT outsourcing propositions. Examples of IT value justification include acquiring new customers, opening new markets, improving cross-selling to existing customers, and enabling creation of customized services and products and enabling faster product design cycles.