Running IT like a business means giving customers choices wherever possible, while requiring them to pay for those choices. But how effective is the practice of running IT as business?
Speaking ahead of the Gartner Symposium/ITxpo in Cape Town in September, where a dedicated Industry Day will take a closer look at the financial services and banking sector, Jim McGittigan, research vice-president at Gartner, explains how CIOs can build financial IT transparency into their organisations.
"Increased demand for IT projects and services, coupled with the challenges that arise as organisations move to digital business models, has heightened the need for CIOs to do more than simply manage the IT budget. CIOs serious about making long-term changes on the financial side of their IT organisation need a framework to plan for these changes."
Gartner's Six Pillars of IT Financial Transparency framework is intended to help CIOs design multiyear programmes that balance optimisation with business change and innovation.
Pillar 1: IT budgeting
The ability to manage the IT budget effectively is a prerequisite for extending the focus beyond budgeting. The ability to manage and articulate the IT budget in multiple ways enables the CIO both to defend the budget and work with the CFO to derive business value from IT.
"CIOs need multiple views of the IT budget to support their efforts to run IT like a business," says McGittigan. There are four views to consider:
* The traditional view, which is an asset-based view of the enterprise (its hardware, software, personnel and external services).
* The technical view (of servers, storage and networks, for example), which enables the CIO to analyse and benchmark technology spending on a per-unit cost basis.
* The business services view, where the CIO creates a service portfolio to communicate the cost of the services that the IT department provides in terms that business people and other nontechnical observers can understand.
* The investment view, which distinguishes the amount of money spent as investments in new capabilities (and their potential value) from the amount spent simply on running the business.
Pillar 2: Investment planning - effective project financial management
Running IT as a business means having an investment-planning process that focuses on the entire life cycle of an IT investment in order to manage costs effectively and maximise value. After a project has been approved, the CIO should track both the actual and the forecast project cost through to completion.
Pillar 3: Charge-back, allocation and show-back
Just because a charge-back method meets business needs in a sophisticated manner does not mean that it will reduce complaints from users and business unit leaders. The IT organisation must understand all the charge-back options that might apply and help the business units understand the options. Sometimes this means choosing which weaknesses the IT organisation is willing to accept and ensuring that business unit leaders understand the trade-offs.
Pillar 4: Benchmarking IT costs
Benchmarking is crucial to demonstrate that the IT organisation is cost-effective and spending the right amounts in the right areas. Incorporating effective benchmarking into the annual planning process will not only provide additional financial transparency, but also a mechanism to identify areas of opportunity that need to be addressed.
Pillar 5: IT cost optimisation
Cost optimisation activities often occur organically within different areas of the IT organisation, and are not managed centrally unless a cost reduction target is mandated. When budget cuts happen, IT leaders often scramble to meet the target and, once it has been met and the "fire drill" is over, they typically return to "business as usual". CIOs should formulate a programme for cost optimisation by establishing a baseline of IT spending, identifying opportunities relative to peer-group benchmarks, developing a strategy to optimise and execute that strategy, and finally tracking the benefits realised.
Pillar 6: Demonstrate the business value of IT
For some CIOs, performance metrics serve to indicate that the IT organisation is ensuring the "trains are running on time" and lack anything that demonstrates the business value of IT. Others understand that cost transparency will not aid the enterprise unless value and transparency are communicated properly and through a constant feedback loop. This could be electronic IT scorecards, as they enable CIOs to monitor performance throughout the fiscal year or planning horizon.
The Gartner Symposium/ITxpo takes place in Cape Town from 18 to 21 September. More than 1 000 C-Level executives will gather to discuss current and future IT trends.
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