ROI on IT

At the core of any business decision, every investor, entrepreneur, or business owner asks many questions about the future of whatever they are undertaking. A few of them are simple – “What will my company look like? How many employees will we need? What kind of future is there for my product or service?” However, one fundamental question that should and must be asked is: “What kind of return on investment can achieve by this decision?” In today’s fast-moving business world, this conversation happens thousands of times a day and it’s not asked enough about operational and structural needs like that of reliable IT. IT is often seen as a cost center, a necessary business expense, and it’s on the rise. 88% of businesses plan to spend the same if not more annually on technology and is expected to grow by more than 12% annually for the next seven years. However, as we outlined in one of our recent blogs: "My Journey with Venture Capital II", a dependable IT partner like iuvo Technologies can increase the chances of a successful exit. The need for quality systems, networks, and infrastructure is critical now more than ever, and with the right understanding of its importance, you can turn your IT environment by not only reducing risk but reduce costs and even become a profit center.

Defining ROI

Return on Investment or ROI for short is a ratio used to measure profit received from an initial investment made. It is traditionally calculated as profit gained less your initial investment and divide by your initial investment. This formula may look familiar as it is also the same formula to measure change in time of a given variable: (Year 2 Value -Year 1 Value)/Year 1 Value.

There are multiple ways in which ROI is factored into the IT sector. Return on Investment is a major factor in Agile and Lean principles, key methods used in the development of software. IT infrastructure in large-scale computing also has been driven primarily by return on investment as well. The advent and development of data centers, industrial manufacturing of semiconductors, and production of personal computers are primarily driven by ROI. Unlike long-scale software development or early-stage companies, the investment structures of companies in these industries are almost solely ROI-based. Lastly, acquisitions of IT companies by larger ones like Google, Amazon, Facebook, just to name a few, are seen as either standalone investments or for future incorporation into existing businesses. These acquisitions are almost exclusively done with the idea that the future benefit (profit) will exceed the upfront cost (investment).

How IT can improve your company’s returns

There are numerous ways strong IT can support your company and provide for a better, cohesive, and more focused organization. Here are just a few ways that your company can benefit from reliable IT.

1. Cost Savings

Undoubtedly one of the primary ways IT can provide you with a solid return on investment is through cost savings. IT is typically considered an operating cost, and calculating your ROI requires that you have a net profit, meaning gross profit less operating costs. By reducing these costs, you are effectively increasing the return or rather, the rate of return. A good example of cost savings that could be achieved is by offloading data storage to cloud services. Data centers charge directly for storage and server space, however, if your organization is typically heavy on data storage, you could see a greater ROI by offloading those costs to another company more equipped or a company that is already managing storage more cost-effectively. The same goes for your managed services. IT departments can be extremely difficult to mobilize or downscale where and when necessary. Having a managed services provider and a cloud-services platform may provide great economies of scale that may not otherwise be achieved.

2. Generating Revenue

Parsing out operating costs and turning what can be an expense into a potential revenue stream isn’t a new thing. Over decades companies have sought ways to fully utilize the entirety of the tools at their disposal in the guise of achieving greater profitability. The IT sector is no different. Amazon’s dominant AWS platform was nothing more than a byproduct in its infancy. However, Amazon found that the demand for this was healthy enough to warrant its own dedicated business line. By investing in IT infrastructure, the company found new profit centers that were directly attributable to their growth. Additionally, being more prepared for future growth allows your company to deploy resources in response to growth, and not be hamstrung by it.

3. Reducing Risk

All industries deal with risk, it is the nature of competitive business. Different industries offer varying degrees of return and are usually tied to the nature of their investor’s or lender’s appetite for funding a company. When companies need funding, typically a business plan is required to be submitted as part of the request. If a company has had issues in the past namely, security breaches, targeted attacks, or infrastructure concerns, this would reflect poorly and more than likely affect the ability to receive capital. This directly affects the cash flow of the company as the risk profile of the company would be elevated if it was consistently falling victim to attack. A strong IT partner can serve to reduce your risk thereby reducing your total cost of capital and improving your ROI.

Strong IT infrastructure is crucial to the operations of any company in the 21^st century, but its necessity reflects more than just the need to maintain your system. A robust IT environment can reduce costs, serve as a revenue generator, and reduce your overall risk. Partnering with an MSP can help you achieve your company’s goals by delegating some of your most time-consuming tasks.

The cost of IT can be significant, particularly if you are running all of your IT tasks and projects internally. The true cost can be hard to gauge, but by using tools like iuvo’s Recovery Time Calculator, you can see the real-time impact of something like an outage could cost you. Request a free IT assessment today and let's discuss further how we can help your company achieve a faster and higher ROI!