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25 May 2010INFOTECH: IT Budgeting for a New Business World
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To support this shift in focus, CIOs are starting to take on new roles.
Rather than simply cutting spend, CIOs are increasingly playing a role in defining priorities and managing change. This involves weighing business unit requirements and quantifying the costs and benefits of different initiatives, which brings with it a new set of challenges as well as opportunities.
"Supporting IT budgeting in a business environment that needs to shift back to growth, means that it is necessary to once again move beyond a short-term cost focus on reduction and to look towards supporting the business," says Steven Woods, South African Country President at Compass Management Consulting. "Compass has developed eight principles of IT budget management designed to help CIOs achieve exactly this."
Understanding technology change
One of the most common mistakes made when it comes to refreshing IT assets is to simply replace like with like, sticking with existing solutions and not considering new technology or the benefits of outsourcing compared to an in-house investment.
Conducting a root cause analysis of technology change, the implications of this as well as the cost drivers enables CIOs to plan and manage asset lifecycles more effectively, and refresh technology to optimise costs and quality of service.
However, it is also necessary to be selective, tying solutions into business strategy and carefully considering the business case before rolling out new hardware and software. A deeper level of understanding also allows CIOs to rationalise asset refresh decisions, and to quantify the benefits to business that these decisions will provide.
Closing the gap between business and IT
"Closing the traditional divide between business and IT is crucial for success in today's environment. IT is often considered to be an overhead expense and not a tool for revenue generation. This makes it vital for businesses to have buy-in and support from all levels for any IT initiative," says Woods.
Any IT solution needs to be fit for purpose - IT should not live in a vacuum, it should exist to provide tools that service the business. As such both areas need to be aligned based on the business dynamic and how IT can best serve the business. The IT budget should be a way of sharing information on what an organisation needs to move forward as a whole, and how much investment is needed to achieve this.
Have a chargeback system in place
IT is not a revenue generating aspect of any organisation; it is simply a tool to help other areas of the business to make money. Having a fair, clear and comprehensive chargeback system in place allows businesses to accurately allocate IT costs back to the departments and divisions that use them, more accurately reflecting the use of IT and getting a fairer estimation of the true profitability of various areas.
If IT is able to fully recover costs via such a chargeback system, increased demand for IT services can become self funding, which in turn makes the budgeting process simpler and far less contentious.
Benchmarking costs
Benchmarking costs against similar sized organisations in similar fields allows a business to find out whether or not IT is providing a cost effective service, and whether they are spending enough or too much on IT assets. It also allows organisations to gain a better understanding of where they can save money.
"By comparing a company with other peer organisations, non IT managers are reassured that the IT solution being delivered is comparable for the industry, which makes getting IT budgets passed a much simpler process,"
Woods explains.
Expand benchmarking beyond IT
Taking benchmarking beyond IT into other business units can give an organisation a clearer picture of the value IT provides to the business.
This enables better strategic decisions around IT as it enables an organisation to better understand the cost of IT as well as the levels of productivity and business benefits it brings.
"By expanding benchmarking in this way a business can understand what would happen to productivity levels should IT not be available in a certain area.
This enables CIOs to build a strong business case for IT systems as it identifies exactly where they can help a business, how increasing spend can benefit the business, and how it can deliver maximum return on investment,"
says Woods.
Manage demand effectively
Demand for new IT systems is always growing, but CIOs need to find a way to manage this demand so that the increased IT spend does not outweigh the cost reductions and productivity enhancements achieved. CIOs need to evaluate requests for new IT solutions and weigh up the benefits as well as whether or not the same benefits can be achieved using existing solutions or downscaled versions.
"This involves a certain level of behaviour management as well," says Woods.
"Take storage for example. The more storage an organisation invests in, the more people will use until it becomes a vicious cycle. Incorporating the chargeback system here can be beneficial, as if each business unit has to pay the cost for the amount of storage used they will be more motivated to reduce storage and improve behaviours."
Measure and report on success
It is important to get an idea of the impact and success of IT initiatives and share this information with the business. This ensures that forecasted benefits are actually achieved through new investments, making certain that scarce resources are not used for no purpose.
Measuring and reporting on success is a way of building for the future. If management can see evidence of how past spend has benefited the business they will be more likely to approve further spend in future based on previous results and return on investment.
Get a second opinion
Obtaining outside help when it comes to building a business case, measuring results or conducting benchmarking exercises can lend more credibility to findings and can add impetus to internal decisions on any new IT initiative.
Third party assistance is seen as independent and objective, and using an experienced and reputable provider enables an organisation to take advantage of comparative data to accurately quantify benefits, conduct scenario planning and so on, based on facts and past experience.
To end
As the world recovers from a tough economic situation, the focus has once again shifted from downsizing back to growth and enhanced profitability. IT can be of enormous benefit to organisations when it comes to achieving this, but CIOs need to embrace their new roles and understand the complexities of IT budgeting and expenditure if they are to be effective.
"If IT is well managed and the budgeting process handled correctly, with time it is possible to see where technology can deliver real business benefits, which may go some way towards changing opinions that IT is simply a cost and not a tool to help the business improve productivity and generate added revenue," Woods concludes.
Business News Sector Tags: Infotech|
