Four IT Spend Questions in Need of Answers

Effective IT management is not necessarily about spending less – or more; it’s about allocating dollars, resources, and talent wisely and monitoring for benefits realization on many fronts.   

 Surprisingly, many IT organizations do not harvest the data nor have disciplines in place to readily answer a few seemingly easy questions about their IT investments: 

1. Where are our IT dollars, resources, and talent deployed today?  
2. Do we have the data and processes in place to present a business view of IT investments?  
3. How do our IT resource allocations, costs, and performance compare to others in the industry, especially top performers? 
4. Are our IT investments aligned to business objectives?  

Although closing in on the answers may be a never-ending journey, Martha Hein, one of ITeffectivity’s Program Directors and a Cost Management extraordinaire, outlines the steps you can take to get there.  

 Let’s get started!  

1. Where are our IT dollars, resources, and talent deployed today?    

 Running the Business of IT depends on the timely availability, analysis, and understanding of quantifiable IT financial and operations data. To demonstrate benefits realization and the value being delivered to the business, IT must first be able to communicate what services are being provided, at what cost and for what return. The first step to answering this question is to compile your data into a scalable model. Data sources include extracts from your financial systems (actual spend by GL and Cost Center, fixed asset registers, prepaid services balance sheets, Purchase Orders, etc.), HR, Payroll and Timekeeping systems as well as IT systems (Active Directory, CMDB, Infrastructure, and Applications Monitoring, Service Ticketing, etc.). 

 Data models are useful tools to measure how your dollars, resources, and talent are being spent today and may elucidate how these might be more profitably spent tomorrow. Data models and taxonomies vary, but the Technology Business Management (TBM) Council provides an excellent public domain example of the inputs required to gather the foundational data necessary to answer this question.  

This data provides the first building blocks required for transparent fact-based communications between IT and business leaders.     

2. Do we have the data and processes in place to present a business view of IT investments? 

 As stated above, the IT Financial and IT Functional views of your IT investments are the first building blocks used for running the Business of IT. The endgame, however, is to have a clear Business view of IT investments. To create a Business view, you must reframe IT investments from a business perspective. Arriving at a Business view requires additional analysis of the above data and may require other inputs. 

 Business leaders are interested in achieving operational excellence and realizing profitable growth, innovation, and transformation for their organizations. To deliver optimal value to the businesses they serve, IT organizations must proactively manage their investments and services portfolios to become enablers, or better yet, drivers of these business objectives. From a Business perspective, running effective and efficient day-to-day IT operations is merely to provide a commodity service.   

 Demonstrate you do more than keep the lights on by enhancing your data model to enable you to report on IT investments along business dimensions.  

• Business partners are often not aware of the Total Cost of Ownership (TCO) of a given IT business service, the full price tag to implement, or the support cost of the technology for a given business capability. Develop a Bill of IT to provide a view of your IT investment portfolio that reveals TCO by business service and/or Line of Business. Help your business partners understand the cost drivers (without burdening them with the details of all the moving parts under the IT hood). Ideally, you understand the cost components well enough to be able to provide counsel on how to favorably impact cost without adversely impacting service levels or creating undue risk. For example, is business demand commensurate with business value? Can you move away from Tier 1 storage or reduce the number of user application licenses without impacting productivity?   
• Demonstrating return on investments requires that you identify the criteria that will be used to measure benefits realization and then establish a baseline against which to measure outcomes. Work with your business partners to define criteria and baselines, then implement on-going monitoring of benefits realization based on agreed-upon measures. 

3. How do our IT resource allocations, costs, and performance compare to others in the industry, especially top performers? 

 Measuring your cost and service performance against industry benchmarks can uncover opportunities for efficiency improvements, thus allowing you to do more with less. Or, more of what is profitable, less of what is marginal, and none of what is just plain wasteful. You will use the data gathered to answer the above questions and simple arithmetic to answer question No. 3. Total IT spend divided by Corporate Revenue equals IT Cost as Percent of Revenue. IT Dollars spent divided by Units supported/produced equals Unit Cost. Setting up the formulas for performance measures may be trickier and the results may not be as objective, but is still relatively uncomplicated. You meet or exceed your Service Level Agreements ##% of the time. On average, you get either an X or a Y on Customer Satisfaction Surveys.   

 As an important caveat, industry benchmark data typically provides averages. When put in context, there may be legitimate business-driven reasons why your organization’s results vary from others in the industry. For example, if your business strategy is to pursue aggressive growth through Mergers and Acquisitions, you will need to funnel resources from Run the Business and Transform/Innovate the Business to Grow the Business and/or accept a higher cost of IT as a percent of Revenue. In another example, if you are aggressively pursuing rapid innovations in your product R&D pipeline, you may want to overlook typical storage costs in favor of being able to model and readily access every permutation of promising molecular structures. 

 4. Are our IT investments aligned to business objectives? 

Start with an easy top-down mapping exercise. Utilize your organization’s core business strategies. Ideally, IT leadership was at the table when these were defined. Identify the core competencies2 and specific Business and IT capabilities that are required to support the strategy. Map the IT programs that support each of the pillars of the strategy.  

 In Closing 

 It is difficult to know with any degree of certainty if your IT investments are aligned to your business objectives until you have at least preliminary answers to the previous questions. Do not allow a possible lack of a comprehensive data set to detract from taking proactive action.   

 We will cover additional aspects of running the “Business of IT” in future articles. We welcome your feedback on what has worked well for your organization and where you continue to feel pain points. 

 Until next time – we are here if you have questions or want to talk!  

 Martha and Mary  

Let’s Talk sponsored by ITeffectivity.com – an IT Executive Coaching and Advisory practice targeting the CIO’s challenge of leading and delivering business solutions with a focus on effective people and process capabilities. Discover the possibilities by scheduling a complimentary strategy session with Mary Patry.