- Articles on software ROI normally leave out some important points about software ROI.
In the article Our Evaluation of the Information Quality Level on Software ROI from Google Search Results we found that the most popular articles on software ROI from Google were of shallow quality. In addition to being poor quality, these articles left out many important aspects of software ROI.
See our references for this article and related articles at this link.
ROI Missing Item #1: The Problems with TCO
Each of the articles I reviewed left out how difficult it is to estimate TCO. Naturally, as ROI uses TCO in its calculation, this means that ROI is even more difficult to estimate as it begins with inaccuracy on TCO.
ROI Missing Item #2: How Does One Estimate The Value from Software?
Software often has many benefits that are difficult to track. Right now, I am using blogging software. What is the ROI on that software? Each plug into this website software is another discrete piece of software. What is the ROI on each of the 50 plugins that are used on this site? How about a much larger system like an ERP system? Or how about CRM systems? CRM systems are supposed to drive increased sales.
However, most companies now use CRM systems.
Did the entire economy expand when CRM became widespread, or was it just companies taking business from other companies? Furthermore, in our estimation, most CRM systems have a negative ROI, as we cover in the article The Problem with CRM that Salesforce Does Not Want You to Know.
Companies that buy CRM systems normally lie to salespeople about the purpose of the CRM system. They often present CRM systems as ways of the company becoming more organized, when in fact, a side benefit is for the company to surveil the salesperson. And when it comes to forecasting, CRM systems can often reduce forecast accuracy as we cover in the article Is Your CRM System Increasing Forecast Error?
ROI Missing Item #3: Who Is in Charge of Estimating ROI?
It is often vendors offering ROI estimations to customers and prospects, but this is extremely problematic as they are trying to sell software. ROI estimations made by consulting firms are not better as they are typically angling for systems implementation’s consulting business.
ROI Missing Item #4: Lack of Specificity as to What and How to Measure the ROI
Most of the articles were written with minimal effort and appeared to be designed for the company to have an article, but without putting much time into effort into the topic of ROI.
It’s very easy to make a statement like the following.
“You need to determine the return on the software. And the formula is (Return from the Software/TCO)”
Stating a formula is a very basic thing to say. But this is the simple part.
- What cost reductions or financial benefits do you chose?
- After you choose the cost or benefit, how do you measure this outcome and then trade it directly to the software?
This is no simple matter.
ROI Missing Item #5: The Reality of ROI Studies
The articles invariably assumed that all software has a positive ROI. However, that is not what the academic studies, which are far more reliable than any private studies, say about ROI on software.
What Does the Research into ERP ROI Show?
Our research into ERP systems found that studies going back to the beginning of ERP software have not shown a positive ROI as is covered in the book The Real Story Behind ERP. This book has had close to no impact on the industry, with the assumption continuing that ERP systems have positive ROIs.
Furthermore, this fact has been hidden by IT media and is virtually undiscussed in the ERP acquisition and ERP industry. And again, with the articles, the potential of a negative ROI on software is almost entirely left out of the discussion. Of the eighteen articles reviewed only one did discuss this possibility.
The overall presentation of software ROI in the most popular articles on the topic, according to Google, dramatically oversimplifies the work involved in obtaining a reasonably accurate ROI calculation. One issue is that most of the articles’ authors had not performed ROI calculations themselves. This means that we have people writing articles that themselves don’t have much understanding of the topic. And without first-hand experience, estimating ROI appears much easier to do than it really is. If a company can’t write a coherent and realistic article on software ROI, it is difficult to see how that company can help other companies calculator ROI.
Our View on Software ROI
At Brightwork Research & Analysis we do not estimate the ROI of software. Instead, we stop at estimating the TCO of software. This is sufficiently challenging without moving into ROI estimation.