How To Manage IT Spending
Most CEO’s and CFO’s of companies of all sizes would say that IT expenses are too high and they are not convinced that they receive value for what they spend. CIO’s today spend a significant amount of time focusing on reducing costs and explaining the value of IT projects to the business. While it is always a good idea to find ways to get the same value at a reduced cost and IT has alot of room to reduce costs, just cost cutting is not the optimum way to support the business. In fact frequently a focus strictly on cost cutting will result long term lost value of IT.
The reality is that new technologies and IT business solutions have come together in the last few years to really provide the long term promise of enabling IT to increase revenue, reduce costs and increase productivity in businesses. This situation has resulted in the new focus of aligning IT with business goals. In a recent blog post I discussed the reasons to create an IT Strategy and that is certainly the beginning of ensuring that IT is aligned with the business strategy.
http://www.hiddenprofitsblog.com/what-is-an-it-an-it-strategy-or-it-roadmap-and-why-do-i-need-one
The IT strategy is the first step. The next step after the IT Strategy is to define the projects, create budgets, obtain approvals and architect the solutions so all the pieces fit together to fulfill the strategy. This is generally where the strategy and alignment falls apart.
So how to ensure the strategy and plan come to fruition and bring the expected value to the business? First, I recommend the company create a board of executive management that includes the CIO, to define project priorities and requirements for project business cases and review project progress.
Second is to manage all of IT – ongoing maintenance, new projects and infrastructure as a unit so the executive board can see how all the projects fit together. The IT department basically has 2 tracks – investment in new systems and functions and projects to sustain existing systems. Create separate budgets for existing system maintenance and new investment. Group the new projects into major programs that work together as a group. Then bring the two together to define the entire IT budget. The consolidated portfolio should include an overall picture of how each project fits into the company strategy and what existing systems and costs will be phased out as each new project is brought online.
This approach enables all of management to see the global picture of IT initiatives and expenditures and for CIOs to manage expectations.
