Using software to measure software buys

Orlando, Fla.-based Alinean recently shipped ValueIT, a "return on investment" (ROI) toolkit. The software lets CIOs evaluate IT projects based on risk and potential return and set benchmarks to evaluate pending projects.

Not to be outdone, research company Gartner got into the act earlier this month with software that measures ROI, and uses what Gartner calls "a Swiss Army knife of methodology tools" to forecast the success of IT projects.

Companies such as Alinean, its rival CIOView and Gartner are aiming their software at CIOs because the IT chiefs often have to demonstrate the potential for quick returns on technology investments in order to get CEOs and chief financial officers to sign off. Such scrutiny, which was far more relaxed during the tech boom of 1999 and 2000, has put a crimp in tech spending.

"CEOs are even looking at tech deals under $100,000 to save money," said Tom Pisello, president and CEO of Alinean. "CIOs need tools to do the due diligence and pick the best projects for a flat budget."

ROI software is largely a product of the tech recession. When times were good, companies were spending on technology without doubting the investment, said analysts. But with the economy in the doldrums, CIOs have to justify any project by balancing expenses, maintenance and revenue growth.

"IT spending has largely become discretionary spending," said Bruce Temkin, a Forrester analyst. "IT spending usually is a percentage of a company's revenue or earnings, and now any investment has to produce economic results."

With companies looking for an independent check on IT decisions,

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ROI software could find its niche. The software is designed to be part of a larger budgeting process that may include outside consultants and services companies. By running potential projects through the software, CIOs can begin speaking the same language as CEOs and CFOs.

"I think this type of software is important," said CIOView customer Joseph Brennan, director of IT for Neose Technologies, a Horsham, Pa.-based biotechnology company. "It helps technical people without financial backgrounds put IT projects in terms that the purse-string holders can understand."

ROI software in general is designed to appeal to three sets of potential buyers: CIOs and software vendors that can use ROI data to pitch customers, and services companies that need to help clients make decisions.

Will the software ultimately replace tech consultants? Probably not. CIOView was a part of consultancy IDC until four years ago and still counts IDC as a minority shareholder.

And a representative of Forrester Research said the company doesn't consider the ROI software upstarts to be competition because Forrester provides more detailed services and one-on-one attention.

Meanwhile, Gartner considers its ROI software complementary to the other services it offers, said Audrey Apfel, a Gartner vice president and research fellow.

How's it work?
Alinean said its software can project returns with about 80 percent accuracy--not perfect, but close enough to give CIOs a rough idea of whether that customer relationship management (CRM) software or server software upgrade is worth it.

In a demonstration, the software looked at a theoretical network storage and Windows server consolidation and estimated the number of IT workers the setup would call for, along with up-front costs and licensing fees.

Alinean's software also ranks IT spending of corporate peers. For instance, a pharmaceutical company can view its IT spending compared with that of rivals such as Merck, Pfizer and Bristol Myers Squibb. That information can give CIOs some guidance on increasing or cutting spending.

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Alinean's forecasting ability is the result of an algorithm that estimates a company's IT spending, a figure that often isn't readily divulged. Alinean's software assesses the IT spending of 7,500 companies by incorporating factors such as expenses, number of PCs, tech workers, executives, profits after taxes and even the number of office clerks.

That algorithm, created by Paul Strassmann, NASA's CIO and an Alinean board member, incorporates data from industry research groups, surveys and regulatory filings with the Securities and Exchange Commission.

CIOView's software, which can be used to evaluate return on investment and total cost of ownership, takes a different approach. It gives customers a free software shell, but the client must buy "content modules" at a cost ranging from $400 to $3,500 to run a specific scenario.

"We don't want them buying something that they aren't going to use," said Scott McCready, president of CIOView. "Now there's more interest."

Depending on the IT project, CIOView's software walks customers through a series of questions about possible configurations and comes up with an ROI goal. The data is based primarily on IDC research and SEC filings, said McCready.

Gartner's main goal in designing its software was to look at IT projects through the prism most CEOs and CFOs use to measure success. "We went from geek speak to talking strategy," said Apfel.

Apfel said the software is based on methodology from a panel of experts on topics such as Six Sigma, an efficiency theory made popular by General Electric.

With Gartner's software, a client can examine an IT project's effect on parts of the business and measure things such as on-time delivery and efficiency of the supply chain.

The future
Although Alinean's Pisello said forecasting tools are largely an "untapped marketplace," the future is still to be determined. After all, if technology budgets get fat again, old-fashioned ideas such as ROI could fall by the wayside.

"I couldn't have launched this company a few years ago," Pisello said.

Alinean's software is still in its testing phase with potential customers. For smaller companies that need a couple of licenses, Alinean's software will cost about $10,000. For medium-sized companies, the price is $50,000, and Fortune 500 companies will have to fork over $100,000 so an entire IT department can collaborate and budget.

CIOView considers its biggest competition to be internal IT departments, which do their own analysis. "In many respects, our biggest competition is an Excel spreadsheet," said McCready. "There are a lot of people that have spent years doing this."

If they fail to catch on, companies such as Alinean may wind up as part of a larger research company. IDC is a minority shareholder in CIOView; Alinean and Gartner also have some familiarity.

Pisellos sold his original "total cost of ownership" (TCO) analysis software company, Interphase, to Gartner in 1998 and then cooked up Alinean a year ago. Alinean's next move will be to develop products that will work with offers from established software giants such as PeopleSoft. The ultimate goal will be to measure the success of an IT project, something many companies can't do.

And as long as IT spending is closely watched, there'll be a market for companies for ROI software.

"I think there's a cultural shift, and ROI is hear to stay in one form or another," said CIOView's McCready. "There's some initial resistance, but this software takes the politics out of IT spending. It's a much healthier way to buy IT."