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December 10, 2009

Comments

Scott Waterhouse

Chuck;

Let me give you another example of where ROI just doesn't work. Consider the case of a service provider--an organization that provides "outsourced" IT services to dozens or hundreds of customers. They currently back up to tape. Individual tape drives cost $10-15k, and all back up is a "shared service". Meaning that no individual project ever pays for a new infrastructure; at most they contribute to an incremental improvement to existing infrastructure.

So, a new project or a new customer comes along, and they add half a dozen tape drives. $50k to $75k. Cheap. And far far cheaper than investing in a new technology. Because that new technology requires a big initial investment before you can begin to leverage this with lots of smaller follow-on investments.

So, left to their own devices, the service provider will (literally) never end up doing anything different than what they are now. And slowly, incrementally, they will end up owning infrastructure that is completely outdated and irrelevant by modern standards, requirements, and unable to meet any reasonable SLA. A sort of death by a thousand cuts.

But it is all perfectly justifiable if your only metric for evaluating a technology decision is ROI.

Justin Warren

You said it yourself here: "You're thinking about it the wrong way". It's still ROI, you're just taking a bigger picture view of the Return. And yeah, it's hard to do well. That's why you get paid the big bucks if you can.

You still have the same issue as always: convincing people that the Return is worth the Investment. Risk vs. Reward. Some people are OK with taking a leap of faith based on some vague assurances that everything will be Just Fine. Some people like a bit more analysis.

Nothing earth shattering.

Chuck Hollis

Justin

I agree. It all boils down to how you frame the problem, doesn't it? Some people are comfortable thinking at multiple levels and in multiple dimensions.

Others need to see a two-dimensional spreadsheet.

I guess I'm encouraging more of the former, and less of the latter!

-- Chuck

Doug

It’s an interesting discussion. The challenge with financial analysis is the building out of assumptions and honestly, in my opinion, some financial staffs take great pleasure in the creative aspects of modeling all of the potential “what ifs”. And this modeling takes time when it is precious. This is not to dismiss the importance of ROI or NPV, it should be done, but there is a balance. I think what we are witnessing today is the role of CFOs and their key leaders changing. Many no longer sit isolated from other parts of the business. They are expected to understand, in detail the business, often thinking at the same caliber as the CEO and COO for their particular industry. Many CFOs have had responsibility for product segments in previous assignments. Just look at David Goulden’s resume. With that comes a much quicker technical appreciation for what is being proposed and why it is strategically important. Sure the financial analysis is and should be done, but we now increasingly have technically savvy financial leaders who can grasp what is being proposed, see the relevance to their business and can expedite the analysis by having their teams focus on assumptions that matter.

The comments to this entry are closed.

Chuck Hollis


  • Chuck Hollis
    SVP, Oracle Converged Infrastructure Systems
    @chuckhollis

    Chuck now works for Oracle, and is now deeply embroiled in IT infrastructure.

    Previously, he was with VMware for 2 years, and EMC for 18 years before that, most of them great.

    He enjoys speaking to customer and industry audiences about a variety of technology topics, and -- of course -- enjoys blogging.

    Chuck lives in Vero Beach, FL with his wife and four dogs when he's not traveling. In his spare time, Chuck is working on his second career as an aging rock musician.

    Warning: do not ever buy him a drink when there is a piano nearby.

    Note: these are my personal views, and aren't reviewed or approved by my employer.
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