There has been quite a few arguments in trying to prove or debunk that ITIL can produce any kind of ROI. The pragmatic answer is: Yes it can, but not as easy as ITIL guidance can hope for.
Let’s step back and define what ITIL is. A simplistic view is that ITIL is a set of best practices that seek to improve the management and delivery of IT services. Like most best practices or processes guidance, it has been put together by drawing from the collective experience of practitioners and organizations that have tried to solve the IT efficiency problem in the past.
ITIL's first version was developed in the 1980s on behalf of the British government. Thus ITIL v3, released in the summer of 2007, is an attempt to integrate and systemize best practices that have been previously loosely applied to the IT service management (ITSM) domain within the last 25 or so years.
When looking at improving IT service management there are then two main options: try to figure out an effective way in isolation or to leverage an existing framework such as ITIL (which has been adopted and tested by thousands of organizations worldwide). Chances are that ITIL will provide better odds to the challenge.
ROI has the following components: Cost of investment (COI) and results of the investment. A positive ROI, which we seek, means that the results should be larger than the investment. Cost of implementing ITIL is the investment and the ITSM improvements we seek are the results. The challenge then becomes the quantification of ITIL costs and IT service improvements.
ITIL costs are anything and everything you will spend in order to design and implement your custom ITIL solution, including any tools, internal resources and external help. The technical aspects of an ITIL implementation are relatively easier to estimate and carry on; organization change management is where the devil works!
Any process improvement program, which an ITIL implementation surely is, will carry a high and usually hidden cost for change management (efforts to bring people on board and provide them with the willingness, abilities and capabilities to succeed and to follow and leverage the ITIL based processes). Your ROI calculation must include a good chunk of change for that part of the investment. Most ITIL implementations fail because little attention is given to the devil’s playground.
To know how far you have traveled, you need information on both the departure point and the destination you have reached. Once you reach a destination, it is relatively easy to quantify where you are: How much time and thus FTEs and thus money your organization spends on managing and delivering IT services. The problem is in baselining your departure point before you leave.
Most organizations do not have a clue about the true cost of their current ITSM practices (or lack thereof). The assessment, once you reach your destination, is easier because after an ITIL program you should be better equipped to do so.
Because of this ITIL ROI conundrum, we usually recommend to clients that they embark on a process improvement program -- ITIL or other -- using an iterative and a long-term timeline. For example, improve your Incident management processes first so that you can start collecting meaningful data and measure the cost of incidents and its impact on productivity. Improve IT financial management early so that you can calculate the true cost of IT services and so on. Once you have basic IT performance information that can be baselined, move on to bigger investments.
In sum, to determine ROI, you need to define what the cost to deliver IT services is today, what the cost of the investment to improve is and what the cost to deliver IT services will eventually be once you reach your destination. Most organizations with more mature policies around program funding will require a business case before approving the journey. Nonetheless do understand that this is only an estimate as you will not know for sure how much the investment will cost you and how much the future cost of delivering IT services will be once you are done.
A good piece of advice: Make sure you have several waypoints defined between your departure and final destination and leverage the lessons you learned from these small trips to calibrate the remainder of your journey. Comparing the estimated ROI for these waypoints to the actual ROI and the causes for discrepancy can provide much valuable information on how to go about the rest of the program and how to reset expectations.
Augusto Perazzo is a Principal Consultant at PA Consulting Group. Augusto works closely with Business and IT executives to define strategies and operating models, optimize processes and empower people, leveraging the power of information technology to design and deliver better services and products. Augusto has an MBA degree from USC Marshall Business School and holds ITIL and PMP certifications