Driving transparency for IT financial management — are we all speaking the same language?

FT.jpgI have been meeting with CIOs and other senior IT leaders over the last couple years. And they always say they want to provide better IT transparency. Yet driving transparency into IT costs, benefits and risks turns out to be difficult. It’s so difficult (but so important) that I want to look at what’s keeping IT leaders from realizing this goal.

 

Being considered a cost center is a problem

 

So why is something that sounds so easy, so hard? For one thing, IT is considered by corporate finance as a cost center. That’s a problem. In the language of accounting, a “cost center” is an entity or organization that has cost but no revenue—or in many cases, business value. Of course the latter is not true because IT organizations are a major driver of business productivity. The problem is that IT organizations do a terrible job of showing their value toward business productivity when their cost is bucketized into cost centers.

 

Making matters worse is the fact is that there is not a single cost center for most IT organizations.  In many cases, there are hundreds of cost centers. And because IT is often focused on technology, its costs are focused on technology—network, storage, etc.—rather than how IT drives value.

 

IT finance is focused on the piece parts of IT

 

For the above reason, almost every IT organization focuses a piece on accounting. Now, here’s the rub. With cost centers based on technology, how does IT present its budget and actual expenditures so that the business truly understands the value of this investment? The reason is pretty simple; the business does not consume IT’s pieced out parts. Instead the business consumes services—email, financial management, internet banking, etc. all provided by IT.

 

Do IT and the business need a universal communicator to explain IT costs?

This means that as long as IT organizations present their expenses from a cost center or technology level, there is no chance for transparency on costs, benefits and risk. This lack of communication is like people on “Star Trek” not being able to pull out their universal communicator—there is no chance to communicate or create mutual understanding. IT simply speaks a different language than the rest of the business.

However, with service-based cost, the gulf between the business and IT can be eliminated. For many organizations, budging season is just around the corner. During this time it is important that the business and IT talk about IT and its services from a value perspective.

 

It is vital that IT have a seat at the table to talk (as a boss of mine once said) like a true businessperson about how to achieve new business initiatives. In this environment IT can ask, “Why we are still investing in this service when only one person is using it and it’s costing us X dollars?”

 

The secret to refocusing expenditure away from simply “keeping the lights on”

 

Making this change adds to IT’s credibility, but, even more important, it also allows IT to un-stick the imbalance of expenditures related to simply keeping the lights on. To do this, IT organizations need to get to a service-based cost structure and then begin a business dialogue with the rest of business.

 

Before concluding, I want to tell a real life story that describes how important this topic is. Several years ago, a friend told me that they had been asked to keep supporting two revs back of Siebel even though the production instance had been running fine for 18 months. When I asked why the business had asked for this, he said the business thought there might be some valuable data in the back versions of Siebel that it might want at some future time.

 

When I asked about what that would cost, he shrugged and said, “If we knew that then we could have prevented this expenditure.” What a waste of money! Put simply, nothing is taken down in IT because IT cannot talk costs, benefits, and risk at a level that the business understands. It is high time that we make this change.

 

Related links:

Solution page: Project and Portfolio Management

Solution page: IT Asset Management

Solution page:  IT Financial Management

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About the Author
Mr. Suer is a senior manager for IT Performance Management. Prior to this role, Mr. Suer headed IT Performance Management Analytics Product ...
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