Capital investment in IT – an oxymoron?

I was once in a conversation about capital investment in IT, where the financial manager posited that IT projects can be treated in the same way as an asset – it has an inherent value throughout the lifespan of the system. The belief was that IT CAPEX investments had a residual value in the same way as a car or building would have, and that therefore, you can sell or liquidate the asset.

I was stunned at the concept, and as I recently came across a similar point of view recently, I wanted to reflect on the concept that capital investment in IT is an oxymoron (that is, the two terms are opposite to each other). I hope that someone will possibly read this article and prevent a waste of money or misaligned belief that somehow incomplete IT investments can be reversed.

IT is a fast moving industry. There is an inherent obsolescence within IT that is greater than in any industry. Although there is a second-hand market for items and assets, most businesses and industries would prefer to purchase a new and recent item, instead of something that is old. That preference is only for new assets and new software – businesses spend millions on clinging on to old software and hardware, because the cost or risk involved in an upgrade or replacement would be (or is perceived to be) greater than the cost of maintaining an obsolete system.

This is the same approach and mentality that can be applied to other investments and assets – machinery and plant, buildings and furnishings – even construction sites. However, it does not directly apply to IT in the same way.

How much is an IT investment worth?

Think of it this way – if you have a bespoke and specialised hardware and software system implemented into a business – and it does not work; how much is that worth to the business? If the system does not deliver business benefits, would any other business want to pay for it?

How about this – if you have developed and customised a business system around your processes, and the project is incomplete – how much value is that delivering?

A million dollar investment in hardware, software, systems and implementation that has not yet been commissioned or made live – could this be resold to anyone else? Software licenses might be able to be re-sold (if another business wants the exact product/version/suite/components that you have purchased, and does not want an ongoing relationship with the software vendor, upgrades or support?), hardware might be able to be re-sold or re-deployed, perhaps components or modules of the development might be able to be re-used within the business – but the project/system itself is not worth a million dollars if it’s incomplete.

Reducing risk

So, all doom and gloom then? If your implementation or product is not complete, then you are throwing your money away? Perhaps. Most IT Projects fail, but with careful planning, and compartmentalisation of smaller, more achievable goals, it would be possible to reduce the risk.

Smaller, less risky and less optimistic projects can be more manageable. A failure in a smaller project can reduce the scale of the impact.