What can be done to improve the IT budgeting process?
Whilst IT bears much of the cost and the majority of the risk that comes along with technology, the organization also bears responsibility for extracting the promised value from the use of technology.
In this landscape, the organization's IT budget helps define the fault line between the organization's need for low IT cost on the one hand and fully exploiting the value of IT on the other. IT costs aren't generally in dispute, as they are relatively easy to measure, analyze and report on.
However, across the fault-line lies value, which is quite a different matter. There is no P&L cost center for "IT value" in the accounting system, and therefore, value is not, for the most part, directly measurable.
In exploring the IT budgeting process, consider the following pointers:
Recognize that value trumps cost
The interpretation of value is not an exact science. We all know that a shirt with a fashionable logo will be more valuable than an identical shirt sans logo and therefore has the potential to attract a higher price. The same principle applies to enterprise IT, only there's a lot more at stake. The fundamental challenge to determine the intrinsic value of any IT initiative, or IT as a whole, is no trivial matter.
- Takeaway: Spend time and effort assessing the value of IT initiatives and test underlying assumptions.
Value is not in the eye of the beholder
Everyone in an organization is a consumer of technology in one form or another and therefore is entitled to an opinion. The end result is that there are multiple visions of IT within organizations, comprised of each influential stakeholder's varying opinions on where, when and how IT could or should be used.
- Takeaway: Ensure that all influential stakeholders in the organization have input on and understand the IT strategy, and more importantly, help shape the IT budgeting process. They get the value -- IT gets to wear the cost -- unless it is based on a full chargeback model.
Get IT to understand the business and vice versa
If information technologies are critical to the viability of your organization, any assumptions surrounding your enterprise IT team's visibility into and understanding of the forces acting on your business should be tested. Without this background, enterprise IT will not deliver value.
Similarly, the IT leadership cadre should not assume that the organization's executives have an interest in or awareness of the IT strategy -- which, in reality should be a business strategy with a technology dependency.
- Takeaway: Increase the literacy of non-IT executives in the world of digital technology, whilst transforming key IT staff to be business literate and able to communicate with the organization in non-technical terms.
Tie IT cost to business benefit
As the value of IT to the organization will likely be indirectly measured, understanding the relationships between cause and effect, correlation and causation is a crucially important step in linking any investment in IT with its value to the organization. IT projects that cannot be tied to, defined business outcomes -- either directly or indirectly -- should be questioned. An exception to this could be IT investments made in the incubation of innovation.
- Takeaway: See your organization as a complete system, and understand that changing one variable may affect others. Knowing these relationships, even broadly, will help guide your IT investments with surgical precision.
The IT cost-value paradigm is in a constant state of flux due to our increasingly competitive, globally interconnected world and constantly evolving digital technologies. It is more important than ever for organizations to spend the time understanding how IT can add value to the business. If you don’t, your competitors surely will.
About the author:
Rob Livingstone is a former CIO with more than three decades of experience in the corporate world. In addition to running his IT advisory practice, he is an author and commentator, providing authoritative, independent insights on a range of IT topics including emerging technologies, governance and IT security. Rob is the author of the book Navigating through the Cloud and is also a fellow at the University of Technology, Sydney, Australia, where he teaches leadership, strategy and innovation in the school's flagship MBITM program. Visit Rob at www.rob-livingstone.com or email him at email@example.com.
Related Q&A from Rob Livingstone
Why does the IT reporting structure continue to roll up to finance?continue reading
Rob Livingstone explains how finance and IT should approach risk and define risk strategies in today's volatile business environment.continue reading
Approximately half of all IT departments roll up to the finance department. Discover how to determine if a hierarchy shakeup is in order.continue reading
Have a question for an expert?
Please add a title for your question
Get answers from a TechTarget expert on whatever's puzzling you.