Using the Balanced Scorecard Process to Compute the Value of Software Applications Steven B. Dolins Bradley University Peoria, IL. 61625 sdolins@bradley.edu ABSTRACT This paper describes a method that will provide practical help for IT managers and other enterprise executives who want to determine the value of their software projects. A set of measures is described that can help the IT manager determine the value of IT projects, either at the time a project is initiated or at the time the project is operational. This paper identifies relevant performance measures used in the balanced scorecard process and then maps them to IT benefits: which are categorized by strategic, informational, and transactional dimensions. The appropriate measure can be identified and value quantified based upon the expected IT benefit. Categories and Subject Descriptors D.2.8 Metrics and D.2.9 Management [Software Engineering] General Terms Management, Measurement, Economics Keywords Return on investment, balanced scorecard 1. HOW DO WE MEASURE VALUE? Using return on investment (ROI) calculations is one way for information technology (IT) departments to prove that their efforts have value and increase their enterprises profitability. The calculation for ROI is based upon costs and benefits. In the IT industry, a project’s development costs can be obtained. However, for most companies with IT departments, it is difficult to ascertain the benefits of developing software applications. Some of the issues include data collection is painstaking (i.e., time consuming and expensive) [3, pg. 543], data is sometimes unavailable, dependency between IT projects makes it difficult to determine which project and investment paid off, sometimes the value is intangible (e.g., quality) [5, pg. 19], and it’s sometimes unclear what to measure. For example, how do you measure the benefits of building a decision support system and utilizing its decisions, or the benefits of installing and making software packages operational, e.g., utilizing a customer relationship management application. In many cases these products do not directly contribute to the enterprise’s bottom line, but rather play a supporting role. Several researchers have compiled lists and classifications of IT benefits [10] [11] [12] [16]. One study classified benefits using the following dimensions: efficiency, functionality, threat, preemptiveness, and synergy [16]. A shortcoming of this study is that they justify their list of benefits with sophisticated statistical models based upon subjective questionnaires; they list a set of benefits that may be gained from an IT application and they asked respondents to rank the relative importance of the benefits [16]. Another study of benefits used broad categories such as cost reduction or avoidance, error reduction, increased flexibility, increased speed of activity, and improvement in management planning or control. They organized expenditures or costs by procurement (e.g., actual equipment purchase or lease costs), start-up (e.g., cost of personnel searches and hiring activities), project-related (e.g., cost of training user personnel in application use), and ongoing (e.g., system maintenance costs for software) [10]. Mirani and Lederer provide a complete list of factors or benefits and categorize the factors into three dimensions: strategic, informational, and transactional [11]. Each dimension and their associated benefits are listed in a separate column in Table 1. This table offers a comprehensive list of organizational benefits of IT and categorizes them in a logical manner. However, the benefits listed in the table are difficult to quantify and measure. That is, IT executives, managers, and researchers may intuitively understand the benefit of their IT application but they still lack guidance on how to measure value. Table 1: Classifying IT benefits using three dimensions Strategic Benefits Informational Benefits Transactional Benefits Competitive Advantage - Enhance competitiveness or create strategic advantage - Enable the organization to catch up with competitors Information Access - Enable faster retrieval or delivery of information or reports - Enable easier access to information Communications Efficiency - Save money by reducing travel costs - Save money by reducing communication costs Copyright is held by the author/owner(s). ICSE’06, May 20-28, 2006, Shanghai, China. ACM 1-59593-085-X/06/0005. 881