It’s 10 O’Clock — Do You Know Where Your IT Costs Are?


Howard Baldwin, Contributor

December 16, 2013

As we all earnestly dissect what went wrong and what went right in IT last year, it strikes me that there’s one topic we’re all dancing around without quite zeroing in on it.

The topic is money. It’s one that’s near and dear to all our hearts, and one fraught with significance. The reason we’re having so much trouble with it: like a diamond, it’s not just a gem – it’s a symbol. It’s rare. And it has many facets.

Facet No. 1: IT budget. This facet is fairly straightforward. With the memories of Great Recession finally fading, it looks like the mantra of “do more with less” might be fading too. In CIO Insight last week, Mike Vizard noted in a survey of 900 IT executives, sponsored by IT services firm TEKsystems, 62% of respondents say their IT budget is going up (though there was no indication of the percentage increase).

Facet No. 2: IT value. This facet is more complicated, but it continues to frustrate C-level executives. Computerworld UK last week reported on the results of a survey noting that “CFOs are frustrated with ‘excessive IT costs’ and limited insights into their business despite IT investments.” I’d be frustrated too if I’d spent a bunch of money and no one could tell me the benefit I’d derived from it.

Even more frustrating, no one seems to know what constitutes a proper way to quantify IT value. Computerworld noted last week an eBay metric of URL transactions per kilowatt hour, which the online auction house believes “translates IT resources into key business measurements: cost, performance, environmental impact and revenue.” Hmmm. That might work for a transactional company like eBay, but not so much for others.

Facet No. 3: IT costs. Here’s the one that I fear flummoxes most CIOs. Do you know what your IT really costs on a granular, departmental basis? Or is it all just rolled up into some vague “overhead” line item, so that when a business unit asks for more processing power for a specific project, you don’t really know how much it’ll cost or how much to bill them. A few weeks ago, Forrester Research analyst James Staten cited this issue in a list of cloud predictions, saying that IT “needs to get real” about cost modeling.

Here’s why it’s important for CIOs to get their arms around every aspect of this issue: until CIOs know what their IT costs, they can’t accurately discuss the value IT projects bring, and they can’t accurately compare those costs to those of alternatives, such as cloud computing in any pick-a-name-as-a-service configuration. Admittedly, multiple cloud and IT financial management software vendors have been hammering on this as well, noting the importance of CIOs becoming “service brokers” who can chose to deliver capabilities either internally or externally, depending on the cost ramifications.

But in the meantime, if a business unit says they want to deploy a SaaS application, can you accurately explain what it will cost to do so on-premises vs. in the cloud? Can you adequately explain the comparative costs, as well as the value that your IT infrastructure and security capabilities provide? If you can’t, can you blame the unit for going rogue?

Applying IT financial management is like deploying enterprise architecture or setting up enterprise standards: a horribly messy discussion but one that will imbue structure into everything you do in the coming years. It’s time to stop and think about budget, value, and costs. If you do, when someone asks you about the what IT delivers, your answer will be factual rather than fuzzy.

Comment below or email CIO Next Community Manager Howard Baldwin about what’s keeping you from implementing IT financial management.

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