Measuring Intranet Return on Investment

By Paul Chin

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After a two-month audit, Special Agent Grimly found a discrepancy in the company's financial assets. The Marketing and Program Management departments have been secretly involved in a project using a corporate intranet for, as yet, unspecified reasons. Thousands of dollars have been put into this secret project but little evidence has been shown on paper as to investment return. Are they purposely trying to hide something? Have they been funneling the funds to an offshore Cayman Islands account? Have they been supporting an underground movement to overthrow upper management? The results of this intranet implementation are inconclusive and case file "x23986001" shall remain opened until further evidence is found.

Answering to the men in black

You already know about the advantages of using an intranet implementation to drive your strategic-intelligence business processes, right? This is a solution that has been hailed by some as the most important collaborative business tool since the telephone. However, deep in the shadows a mysterious group of men and women are watching you. They are watching every dollar you spend and wondering when they will see a return. Will you have an answer when they come knocking on your door?

To begin answering the question of intranet ROI, you need to build a business case to prove that an intranet is a valuable and cost-effective solution for your company. Management doesn't want to spend money on something it doesn't have to and if they do, they'll expect big returns for their investment. Unfortunately, an intranet, being a proactive solution, may clash with management's well ingrained"if it's not broken, why fix it?" mentality. An intranet fixes problems before they become problems and you have to prove this.

A business case will basically provide your financial sponsors with the details of your intranet project minus all the "techie" jargon. Your business case should include:

If time and resources permit, a pilot project could also go a long way to answering a lot of questions from the "people upstairs" with regard to intranet ROI. Unlike a simple PowerPoint presentation with static screen shots of a theoretical intranet, a pilot project will allow you to turn that idea into a practical working model. Once your key sponsors are given a chance to test drive your intranet on a much smaller scale, they will get a better sense of what can be accomplished and how it can effectively be used as tool to aid or replace current business processes.

UFO: Unidentified Financial Object?

Intranets are one of the more difficult business solutions to measure for ROI. The reason for this is that many of the benefits associated with intranets are intangible. These cost-savings are in so-called "soft dollars"; improved employee productivity, tighter inter-departmental as well as corporate-wide collaboration and communication, faster and easier information gathering and sharing. How do you measure such things? Some managers don't even bother trying to quantify intranet ROI because it's just not worth it. An in-depth ROI analysis will end up taking more time than actually building the intranet itself.

I mentioned before that intranets are being compared on the same level as the significance of the introduction of the telephone. When you think about it this way, has any company ever been asked to quantify the ROI of its telephone system? No, because everyone understands the latent value and importance of a telephone system in both corporate communication as well as communication with clients.

Does this sound like professional suicide? Asking your company to invest in something on faith that it will end-up paying back? Well, not quite. Let's take a quick look at an intranet's three main expense categories:

The Complete Intranet Resource (CIR) Web site offers downloadable intranet ROI cost calculation worksheets. These are simple spreadsheets with sample figures that you can use as templates in trying to determine your own intranet costs. Fastrack Consulting Ltd. also provides a cost-benefit calculator using hypothetical figures and timelines. Obviously, the size of your intranet and the size of your company will play a major role in trying to determine intranet cost and ROI.
Evidence of existence

So, when all's said and done, how do you measure "hard dollar" investments with "soft dollar" returns? It's difficult to directly connect money spent with money returned, in this case. Some analysts say that, at the very least, you will break even within one year. Others, such as Forrester Research, place average intranet application ROI at 1238%. The difficulty with respect to measuring intranet ROI stems from the fact that much of the payback comes in the form of intangible returns with indirect cost savings:

  • Replacing Hard Medium - These are the savings accumulated by replacing paper documents as well as the administrative costs associated with maintaining and storing this hard medium. This includes reductions in both distribution and production costs.


I Want to believe

An intranet is a solution that provides long-term gains with short-term costs. Sure, it may seem like a lot of money to invest upfront when compared with something like the production of paper-based medium but what you need to realize is that the initial costs will pay for themselves in the long run. The rolling costs of printing, maintaining, and distributing hardcopies will accumulate and these are dollars you won't be getting back either. It will cost you money, no matter how big or small, every time you need to make an update.

The good news with an intranet is that much of the initial costs come in the form of a one-time investment. A properly built and maintained intranet will eventually reach a point where it becomes self-sustaining. Every dime you put in will bring with it the opportunity for gain, either directly of indirectly.

Despite my efforts at convincing you about the difficulties associated with trying to quantify intranet ROI into a feasible number that you can put on paper, your sponsors will want one anyway. That's just the way the world works; you put water in the fridge and it will freeze, you go outside when it's raining and you'll get wet, you ask your company to invest in a solution and they'll want a concrete return... isn't it strange that ROI means "king" in French? Hmmm, coincidence? I'll open up a new X-File.

This story was first published on IntranetJournal, an internet.com site.

Paul Chin is an IT technologist and intranet specialist for Competia, a consultancy and training organization for senior executives and analysts in strategic planning and competitive intelligence.