As IT increasingly becomes a strategic partner to the business, the ability to accurately attribute IT investments for both one-time and on-going operational needs becomes critical. The IT budget as a percentage of overall corporate spend has been increasing decade after decade. Capabilities that can assign multiple types of cost attributions are becoming more commonplace so that the IT and finance organizations can be in lock-step on what and to what degree IT is utilizing resources. But, cost transparency is, as they say, “necessary but not sufficient.”
Knowing IT costs only provides half of the picture. Once you can accurately attribute costs, you need to make the strategic decision of what investments provide the highest returns to the business. Where are you being asked to drive transformation, to ward off competition, to create greater efficiencies? The costs can tell you if you are being inefficient in particular investment areas, especially as concerns industry benchmarks, but this is, for the most part, a backward looking “clean-up” of the IT assets and investments. In order to drive strategic intent, both the cost and value of each IT investment needs to be clearly articulated and quantified.
This can be very challenging for IT leaders. The ability to look forward and to establish strategic needs is a new skillset – very different than the accounting and project-management oriented skills required for cost transparency. Market dynamics come into play when assessing value, including what new services and capabilities the organization will drive to remain viably ahead of the competition. What market segment represent the best opportunity to address, and how can the organization’s products and services best be supported by IT to deliver to those segments? Can risk be quantified and integrated into the overall strategy so you’re not overinvesting in highly uncertain ventures that may turn out to be duds, leaving the organization with little or no pipeline? How can you balance the care and feeding of your cash cows with the new but necessary investments in the potential future starts?
A framework that enables you to collaboratively evaluate and quantify strategic priorities is critical to the go-forward task of assessing value. When asked by executive management why you made certain tradeoffs or investments, it simply isn’t possible to give them a full answer if you base it all on cost. The benefit needs to be included as well. Benefit to cost tradeoffs are not something new, but understanding them in the context of strategic priorities and how to get the most value out of a portfolio of IT investments is. It is never too early to start down this path.