Digital Transformation » IT spend health check

It’s the perennial question finance directors of every sized organisation are asking: Why do so many IT projects overrun on cost despite the best possible efforts to apply diligence at every stage. Given this is the case, starting a new year could be the perfect time to run a check on whether the right processes is in place.

Colin Rowland, a vice-president at Apptio, a developer of technology business management software, says a good starting point is ensuring a clear line of communication between finance and IT is in place.

He says it doesn’t help that CFOs don’t always understand the use and purpose of this spend. “You can view what is spent, but not on its effectiveness,” he adds.

Without this approach, finance directors will struggle to see tech investments as anything more than an unwieldly, opaque part of the overall corporate budget, argues Rowland. “IT leaders struggle to get a seat at the table with business leaders for the precise reason that the IT spend they are responsible for is not aligned to business goals,” he says.

“Finance directors should be able to identify and drive a clear role for the IT budget, but in order to do so effectively they need to understand the value of IT budgets. This means there needs to be communication between IT and Finance from the onset,” he says.

As a consequence there is usually a disconnect between IT spend-where it goes, how it’s used and how it ladders up to organizational goals, suggests Rowland. “IT is no longer simply an enabler, IT has become the foundation for all strategic business initiatives. Because of the increasing importance of IT’s role in competitive differentiation, it is critical to have visibility into where spend takes place and understand how that supports the company’s strategic initiatives.

“Finance leaders need to be sure the money given to IT is aligned to company goals without exceeding budget, but they can only do this with a clear understanding of what each IT dollar actually drives for the business,” he continues.

Bang for your buck

Barry Matthews, a partner at global technology research and advisory firm ISG, says that conflict can arise between finance and IT over delivering on targets, but a move to subscription models, also known as ‘As-a-service’, are changing this dynamic as they become increasingly popular.

“Moving to a subscription model means that the cost and performance of IT procurement is more predictable and reliable. The trend for shorter, more nimble projects, rather than wholesale overhauls which could take years, has also helped, as suppliers have less scope to charge more than was originally agreed,” says Matthews.

An annual check up to ensure IT services are delivering on cost and quality is essential, says Matthews. He says most organisations collect so much data that this needn’t be an onerous task. “Finance can work with IT to ask whether resources are being used in the right way. If organisations want to go a step further, they can compare their IT spend and services to other enterprises”.

He recommends using a benchmarking tool to see how much companies are spending in comparison to competitors, as well as checking if the value they’re receiving matches what others are getting.

More broadly, finance should be asking if the IT project is going to enable long-term competitiveness and growth, says Matthews. “It’s important to see every IT project as a business project. If long-term competitiveness and growth is a strategic business objective, IT should align with those aims. As a ground rule, unless there’s a tangible business outcome, the budget shouldn’t be granted, so it makes sense that the financial director should be asking these questions,” he adds.

Outsourcing smart

If an organisation is committed to outsourcing much of its IT work, it pays to make sure that it is undertaken in an intelligent way, that doesn’t just mean cutting costs, says Dr Bert Kersten, Professor in Business Processes and Technology at Nyenrode Business University in the Netherlands.

“Outsourcing should always be conducted in a strategic manner with a holistic view of the organisation, and never in isolation,” says Dr Kersten. He says there are so many different solutions for improving productivity and agility – from automation or machine learning to offshoring – outsourcing needn’t be the default option.

“IT projects are business projects, and so we should always be looking at the best possible way of doing things, rather than defaulting to a model that has worked in the past,” says Dr Kersten, who previously worked in the banking industry and in IT-consulting.

It should always be possible to renegotiate outsourcing deals to improve commercial terms and align service levels with current business requirements, says Dr Kersten. “The best suppliers see themselves as strategic partners, working in collaboration with you as a customer, and so it should always be possible to sit down with them and discuss whether the service they’re providing still aligns with your business priorities,” he says.

Since technology always gets cheaper over time, this should be built into the contract, says Dr Kersten who says that consultants can help ensure these details are considered before terms are agreed. “However, if you find that you’re tied into a long-term contract that no longer meets your needs, providers are usually open to a review and negotiating amends where needed. After all, few businesses want to lose valuable customers,” he insists.

There is also a strong case for conducting a rapid due diligence review across the whole IT service portfolio, says Dr Kersten. “It may be contentious among IT leaders, but financial directors should feel empowered to conduct a review of IT’s service portfolio.What was good value for money last year may not be good value this year, and so it’s common-sense to do a health-check,” he advises.

“However, it’s important to understand that IT services shouldn’t just be viewed as an opportunity to cut costs – outcomes are critical too. In fact, the IT department can be a great revenue driver. For example, is there an opportunity for your organisation to sell data that it already collects? Finance can take an important role here in helping IT to identify potential new revenue streams,” adds Dr Kersten.