Business Performance Measurement: IT Metrics

8 Feb

Two important factors need to be taken into consideration when investing in IT. Firstly, the term or length of the investment and when the return is expected, secondly the inclusion of all tangible and intangible benefits. Making the analysis too complex can result in a time demanding and cost consuming process that could lead to a conclusion that is difficult to interpret, however leaving out too many factors would lead to misleading results. [1]

Appropriate metrics are of crucial importance to firms when measuring the value of their IT investment. Cisco is an example of a firm who used metrics to improve processes:

“Cisco Systems implemented a cross-departmental council to create metrics for improving business process operations. The council developed metrics to evaluate the efficiency of Cisco’s online order processing and discovered that due to errors, more than 70 percent of online orders required manual input and were unable to be automatically routed to manufacturing. By changing the process and adding new information systems, within six months the company doubled the percentage of orders that went directly to manufacturing.” [2]

Efficiency and effectiveness metrics are two primary types of IT metrics. Efficiency IT metrics measure the performance of the IT system itself including throughput, speed, and availability. Effectiveness IT metrics measure the impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases. Peter Drucker offers a helpful distinction between efficiency and effectiveness. Drucker states that managers “Do things right” and/or “Do the right things.” Doing things right addresses efficiency—getting the most from each resource. Doing the right things addresses effectiveness—setting the right goals and objectives and ensuring they are accomplished. [3]

Effectiveness focuses on how well an organization is achieving its goals and objectives, while efficiency focuses on the extent to which an organization is using its resources in an optimal way. The two efficiency and effectiveness are definitely interrelated. However, success in one area does not necessarily imply success in the other. The boxes below [1] clearly show the differences and importance of both areas.

1. Efficiency Metrics 

Efficiency IT Metrics

 2. Effectiveness Metrics

Effectiveness IT Metrics

If a firm can successfully manage both efficient and effective metrics, and exploit opportunities that result from results of these measures, they will greatly increase the chance of their IT investment triumphing.

————————————

[1] Daniels, H. C. (1993) Information Technology: The Management Challenge, Addison- Wesley Longman Publishing Co., Inc.

[2] highered.mcgraw-hill.com/sites/dl/free/…/baL76795_ch04.pdf

[3] Drucker, P. (2006) The Effective Executive: The Definitive Guide to Getting the Right Things Done. New York: Collins.

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One Response to “Business Performance Measurement: IT Metrics”

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  1. Business Continuity Performance Metrics | Continuity Planning Guide - December 6, 2014

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