Im sure its little more than a coincidence, but I noticed a while ago those ever-popular three letters that set IT executives hearts aflutterROIalso happen to be a word in French (a side effect of being a language major in college). Roi in French means king. And in todays economic environment, ROI is king in any language.
But how exactly is return on investment measured (for more, see ROI Calculator, p. 12)? Doing it wrong can prove costly, and no one is budgeted for that nowadays. Essentially, it comes down to developing metrics, and the trick is to be sure the metrics measure what you really need them to: less cost? greater efficiency? faster time to market? increased sales? It can be any or all of these. The overriding issue ultimately is, has it supported the business goal as expected? And how well does this project fit in with all the others and fulfill the corporate strategy?
Project portfolio management is a relatively new approach to track IT progress, and some insurers seem to be jumping on board. Essentially, it involves viewing all IT projects as investments in a portfolio, just like managing financial portfolios. Not a bad concept if handled like a mutual fund, for example, where the investment mix is balanced for risk and payoff and evaluated and reallocated on an ongoing basis to maximize return and soften the blow of failures.
The analogy to an investment portfolio raises another interesting idea. One method of compensation for money managers is paying them on the basis of the return they achieve on the portfolio they handle, rather than, say, commissions.
Apparently a similar scenario is taking place in the world of IT. According to survey results released last summer of 151 organizations, including 23 insurers, by people3, a Gartner company, Short-term incentive and bonus programs based on business unit performance are considered the most effective method of improving the performance of IT employees. The company further stated the method has gained popularity with 39.1 percent of respondents using the short-term incentive method compared with 30.9 percent in 2002.
Regarding the survey, Lily Mok, senior compensation consultant, research, at people3/Gartner, says: We find from the group in general that companies are using more variable pay components (incentive/bonus), and especially those tying IT reward to performance, not only at individual performance level, but more so at business unit and corporate performance levels, and this holds true for the insurance industry, as well. I also found that during the past survey period, insurance companies that responded to the same question in both years seem to have increased their use of short-term incentives based on corporate performance and individual performance.
So it appears the portfolio trend is dovetailing with a compensation trend. This happily also supports the industrys penchant for better alignment between business and IT. It actually puts the money where the industrys mouth is and could be a win-win: Motivation for the employee, results for the company, maximum ROI.
Long live the king.
Sharon S. Schwartzman
Editor-in-Chief
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