Thursday, February 18, 2016

CIOs as Chief Investment Officer: Three Aspects to Run a Budget-Smart IT Organization

Running a budget-smart IT organization takes discipline, methodology, and practice.

The majority of IT organizations get stuck at the lower level of maturity, with the reputation as a cost center, IT investment in many organizations is a controversial subject, Statistically, seventy percent of technology initiatives don't have a direct measurable effect on the business benefit. In order to reinvent IT as a value center and running IT as a business, CIOs as Chief Investment Officer, how can you run a budget-smart IT organization and present IT value to the business more effectively?

IT Asset Management: Companies are highly dependent on IT executives who make the proposal to change/ replace the technology based on the need of the business. Thus, IT should continue to review upon the ROIs of existing IT investment, whether IT depreciation life cycle is completed or not; whether new technologies/ products mature enough in the business market to adopt. Some IT executives do two different finance planning: (1) industrial and (2) fiscal. Matching the two tells the CFO when, for real, some assets will have to be renewed, so it gives the finance department the right information about when to get ready for the money to buy something. The other question IT need to agree upon with CFOs is whether or not they are going to treat any software developed for internal use as an asset. In essence, treating these expenses as capital instead of operating expenses. Applying the right procedures and policies to asset management allows IT to create a realistic budget with few surprises, and keep best practice to adapt to “continuous changes. ”

IT benchmarking: Benchmarking is a way of learning from other organizations. Comparing to external benchmarks is a healthy exercise and positions the CIO as a critical thinker who assesses the company from both an internal and external perspective. Tangible benefits can also be realized. But it is not to construct measures to beat the internal organization into submission. Sadly sometimes such crude measures have led organizations to make decisions that are based on short-term cost savings that lead to higher costs downstream or even worse, loss of competitive position. Investment justification is about spending the money right and getting the right results. You should not spend to meet a quota, nor should you avoid spending to stay within a quota. You should spend to make a return. Assuming a proper business case is involved with each IT project, the answer to the question of "how much" becomes "however much makes business sense." If done properly, IT investments save business money through improved efficiencies and better service. The merits of IT benchmarking is to ensure you are looking at your #s in a manner consistent with others, make IT more transparent and validates your spending levels or forces you to explain why it differs from the norm.

Multidimensional IT value measurement: IT value is not something that can easily be measured and is very subjective. Remember that IT is there to deliver the programs that the business wants and states that it needs. The value of these programs is derived from the business and often competing business units will argue that they are more valuable than others. It is not as simple as taking measurements and making quick deductions. For example, TCO is a component of a management framework that gets to ROI. TCO is a concept that cuts across typical budget lines. TCO is a combination of tech expense, marketing expense, operation expense, etc. related to delivering a service or producing a product. TCO is often applied to tech expense today, but often because technology is a significant expense for a large percentage of companies. Analyzing the data is also critical to understanding the measurements. This is not an easy job, but it is not impossible, certainly within the capability of an analytics person. The point is, if the correct goals and objectives are set by the correct people, if measurements are then taken and analyzed, the analysis provided to the right decision makers, and the opportunity is provided to the CIO and the stakeholders to explain the variances, and then the correct decisions can be made, the correct actions can be assigned, and improvement in the business can be achieved, and the use of statistical analysis techniques arrives at providing very valuable, insightful, useful and realistic results.

IT leaders and managers can leverage the scoreboard and dashboard in helping to measure and visualize IT performance and enabling instantaneous and informed decisions to be made at a glance. A scoreboard is strategic driven, and a dashboard is an operation-oriented. A scorecard assesses progress to strategic goals whereas a dashboard assesses performance to operational goals. A scoreboard is to provide the “balanced” view of trade-off variables; whereas dashboard tries to present key performance indicators in a visualized way. Still, benchmarking, tools or KPIs are all the means to the end, the end is to run a high-effective, high-performing, and high-mature IT organization.


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