ORLANDO, Fla. -- Even though CFOs at many businesses control the purse strings of their IT organizations, they're often unsure whether their IT budget is being spent wisely. According to a study by CFO Research and AlixPartners, a consultancy based in Southfield, Mich., 57% of the 153 finance executives surveyed said their company was only fair or poor at ensuring discretionary IT projects yielded the expected financial return. In addition,...
71% said they felt their company's access to information was subpar considering its investments in technology.
During the conference session, "How to Get the Most out of Your IT Spending" at this week's CFO Rising East 2013, Celina Rogers, editorial director for CFO Research, said this uncertainty could put a damper on CFOs' willingness to invest in IT. "That ability to measure the performance of past … projects can set the conditions for investment in the future, and without that, skepticism starts to rise up about whether these projects are really worthwhile," she said.
So how can finance managers quell their doubts? Consultants from AlixPartners offered a few tips that could help CFOs both optimize their IT budget and gain confidence that IT projects will achieve their goals.
Divide the IT budget into two categories and rethink ROI
The survey distinguished between "keep it running IT" and "transform the business IT." Items in the first category included investments in servers and data centers, and maintenance of existing systems, while the latter was defined as discretionary IT spending, typically in new systems and technologies. While survey respondents recognized the distinction between the two categories, 66% said they didn't separate them in the budget.
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Meade Monger, global co-leader for IT and applied analytics at AlixPartners, said this is a mistake. He recommended that CFOs analyze the IT budget for the two types of spending separately and strive to keep costs as low as possible on the "keeping it running" side.
But what amount should a company allocate for transformative projects? Bruce Myers, managing director at AlixPartners, said it depends on technology business cases presented by business unit leaders. Ultimately, it's up to finance and IT to determine which projects to fund.
Monger also offered advice for how CFOs should approach the ROI of transformative IT projects. "The ROI analysis must include a financial and a feasibility analysis," he said. "Will this new technology really work? Will the business embrace change? Making that assessment up front is important because if you just do the financial analysis and don't make sure it will execute properly, it's a waste of money."
Don't solve a small problem with a big solution
Large technology projects such as ERP implementations can sometimes fall prey to "scope creep." Continually expanding the goals of a project can make it difficult to determine whether it was successful, and contributes to finance executives' uncertainty about IT investments, according to Myers.
He said large projects are not only more likely to fail, but they can be too big a solution for what could be a small problem. "With a lot of smaller projects you can get 90% of the benefits with a tenth of the risk," he said. "We suggest that finance question every big ERP [project] and try to look at it in a more targeted [way]."
As an example, Myers explained that one of his clients decided to undertake a large ERP project to remedy a forecasting problem. However, two weeks in, Myers realized the problem was actually a process snag and that the organization had all the necessary data in its legacy systems. After the problem was solved, the client was able to call off the ERP project.
Prioritize BI and analytics in the IT budget
As for which "transform the business" IT projects should be on CFOs' radar, both Myers and Monger stressed the importance of business intelligence (BI) and analytics.
"BI is critical, but what is it? Very simply, it's key information that you need to have at your fingertips to operate most successfully," Myers said. "So, what's selling? Who's buying? Is it profitable?"
Myers said CFOs should start by identifying the questions they would like to have answered with the help of BI before implementing a particular tool. After the questions have been defined, he said the most challenging step is aligning the relevant data.
"I promise you, 99% of the time the information is there, [but] pulling that information together into a data warehouse oftentimes requires making things consistent," he said. "But once you have all the data you need in that box, then you can easily answer all these questions."
And the sooner CFOs can start investigating BI, the better. "We would suggest that if you're not starting to do that, you should," Myers said. "Your competitors are."
Emma Snider is associate site editor of SearchFinancialApplications.com. Follow her on Twitter @emmajs24.