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Just 42% of Companies Calculate Return on Investment of Applications They Develop

A survey of 300 software application developers at Fortune 1000 and other leading companies reveals that just 42% of companies calculate return on investment of the applications they develop. In addition, just 7% of respondents say they measure the return against a well-defined set of metrics and success criteria.

According to a 2008 report by the U.S. Census Bureau, computer software expenditures totaled $54 billion in 2006, the last year of complete statistics.

Commenting on the survey, Gabriel Torok, CEO of PreEmptive Solutions, said, “Before companies commit to spending billions on machinery, real estate or other hard assets, they calculate the expected return on investment, yet few companies do this with software. It adds up to a huge expenditure that is rarely measured as a genuine asset or balance sheet line item. As the economy tightens, companies will want to know how to measure the business impact and the return on their investments in applications – but few know how to begin.”

Torok suggests the following steps in creating an effective system for measuring application ROI:

a. Invest in developing meaningful and consistent usage and impact metrics

b. Tie these metrics to development, support and maintenance investment. strategies. Usage and impact metrics must translate into smarter application portfolio management decision making and development resource utilization

c. Incorporate application ROI management into broader business performance management practices. Success can only be assured when application asset management is fully integrated into operational and business performance management.

According to Gartner, Inc. in “Application Strategies Need Hard Data on Business Use” (20 May 2008, Andy Kyte), “CIOs and IT management teams should start to demand and expect each application to have some key use indicators defined that enable business activity to be monitored and regularly reported to support management prioritization initiatives.”

Additional survey results follow:

Does your company calculate a return-on-investment on the applications that you develop?
Yes – 42%
No/Unsure – 58%

The industry group with the highest positive response was Independent Software Vendors with 48% and the lowest was Government with 0%.

If yes, how does your company calculate return on investment of applications?
Apply a well-defined set of metrics and success criteria to ensure a consistent approach – 16% (7% of total respondents)
Treat each situation as unique or have multiple approaches – 84% (38% of total respondents)

The industry group with the highest percent using a consistent approach was Telecommunications with 25% and the lowest was Financial Services with 0%.

If no, would your company benefit from adopting a consistent system for measuring application return on investment?
Yes – 41%
No – 19%
Unsure – 40%