Stop Using ROI for Determining the Value of Mobile Apps

Companies frequently use traditional ROI calculations to judge the success of an IT project, or determine whether to go forward with one. But a Gartner report, “Approving the Correct Mobile Projects Requires Additional Evaluation Criteria,” written by analysts Leif-Olof Wallin and Bryan Taylor, warns that ROI may not be suitable for determining the worth of a mobile app. Worse still, relying on ROI calculations to decide whether to move forward with a project can put an enterprise at risk.

Gartner warns in the report that between now and 2019, “40% of all mobile app projects will be denied funding due to inadequate projections of ROI,” and that “through 2019, half of all approved mobile projects will be inadequately funded to ensure their success post-deployment.” That’s all the more reason to come up with a better way than ROI to gauge the success or projected success of a mobile project.

Why Value on Investment (VOI) Trumps ROI in Mobile

Traditional ROI calculations don’t make sense for mobile apps for a number of reasons, Gartner says. A big one is that “The expected life of the actual app or infrastructure investment is not the same.” Infrastructure frequently lasts quite a few years, while mobile apps instead have lifespans of 18 to 36 months. In addition, mobile apps often need a higher level of ongoing support to stay current; for example, to be rewritten for new operating system releases.

So rather than ROI, Gartner points to several other kinds of calculations enterprises should use when calculating the value of an app:

• Value of investment (VOI): This generally works best when security and risk, compliance, competitive pressure, or brand impact are driving the need for the app.
• Limited cost: This is a fast-track decision process for smaller projects.
• Business willing to pay upfront: With this option, a line of business or department would be willing to front the cost of app development.

VOI should be used for speculative investments, Gartner says, such as opening up a new business area. It often works well when it comes to compliance as well, because the cost of non-compliance can be so high. VOI should also be used in instances of competitive pressure, in which survival requires that you build the app.

When it comes to fast-track, limited-cost calculations, they come into play when a mobile project is “so small from a budget perspective that the overhead introduced to follow the standard heavyweight project approval process may be larger than the actual project.”

As for businesses willing to pay upfront, if a line of business (LOB) absolutely needs an app, IT and the LOB can charge the cost of the project back to the LOB.

For more information about the report, click here.