ENTERPRISE MANAGEMENT ASSOCIATES®
Analyst Corner
January 2010 EMA Analyst's Corner:
Starting Places: Tackling IT Financial Management
Information Technology (IT) expense control and cost transparency were top-of-mind for IT executives in 2009. This priority is unlikely to subside for the foreseeable future and perhaps not at all as the organizational bar for IT is now significantly higher than in the past.
IT is well on its way to achieving a level of maturity to address IT financial management, and toolsets are arriving on the scene creating an intersection that makes IT financial management feasible. Economic pressures and C-level executive expectations are helping to advance this trend at a rapid pace. While financial management for the enterprise is quite mature, IT financial management is just getting its bearings.
IT Financial management is not a simple task. It stretches far and wide encompassing business-focused disciplines and operational usage data. Project, asset, service and configuration management are all typically part of the mix. Cost data and expense modeling then must be built on top of management analytics to arrive at the level of financial transparency expected by the corporation. Seasoned IT professionals understand that change is not immediate in IT’s complex operating environment, so steps must be taken to move forward and gain traction.
The most effective strategy is to design a series of tiered initiatives, each one building upon the success of the former. Part of the reason for this approach is pragmatic - aimed at developing IT financial management skills for its professional team. The other element is success-building—demonstrating valuable outcomes for the CEO, CFO and business unit leaders. Starting points for each organization will vary depending on the needs of the company and also the availability of information to successfully deliver financial transparency for the function chosen. Expecting a significant budgetary infusion to get the project off the ground is most likely an unreasonable goal until value can be demonstrated.
Any of the following may be wise starting points:
* Improve project planning and project management processes to assess ongoing expenditures and avoid project overruns. This will enable visibility into planned versus actual budgets.
* Hone in on the service definition process and then reevaluate service needs as a lifecycle process. Priority services will arise as key IT financial management targets as service definition evolves. Services that are of lower urgency can wait until a future time.
* Focus on usage information and education as a tool for IT value. Usage information may take the chargeback route where IT begins to charge business units and departments for their consumption of services. It may be that showback works best politically in the corporate culture. Here the usage information is tied to costs as an educational tool that then feeds budget planning and service quality level discussions of the future.
* Software asset management is low hanging fruit for many companies as a place where cost savings can be realized in the near-term. This starting point requires IT to prepare for an audit, review software asset management toolset capabilities and assess the value of existing licenses that are not currently in use. In addition, it is a time to evaluate licensing models. Perhaps a software-as-a-service (SaaS) model is appropriate for some software solutions. This could be a place to save or shift costs.
Not all suppliers perform as well as expected. Begin a process to track vendor performance in a measurable way. Your enterprise may have tools in place to do this automatically or it may need to be a short-term manual exercise. Metrics can include responsiveness, ratios of support costs to support performance, hardware malfunction and many others. The value of this information is in contract negotiations. This step will be most important to companies facing contract review or renewal where performance of the vendor or its products has been subpar.
Any of these options may be suited to your company. Or, there could be other possibilities. The most important aspect in deciding how to move forward is to choose a starting point relevant to your company and one where the IT management team is confident it can deliver results. The criteria for choosing a starting point will help you to decide:
* Do I understand the cost model and the IT service being delivered?
* Is there adequate information about capex and opex expenses related to this choice?
* Will my executive team find the financial details for this step relevant to their planning? This may mean that the potential cost savings is great once the IT organization better understands opportunities for savings, or it may be an area that the executive team has been focused on—rightfully or wrongly assuming expense is being consumed unwisely.
* How will I present the before and after picture to the management team?
* Is the duration of this phase short enough to show results for the next tier of IT financial planning?
Success in IT financial planning helps IT to become a stronger fiscal contributor and responsible management entity. When done well, IT will become more a more respected member of the management team. Read more about this topic in a recently published paper written by Enterprise Management Associates for HP called Taming the Elephant: Achieving Financial Management for IT.
