Offering regional and national programs, CIO (and CSO) events bring together some of the most respected names and thought leaders in information technology and security. Presented by CIOs and other senior level executives, these invitation-only programs offer timely topics and strong networking. Learn More »
Public Council Teleconference: Application Rationalization — Hidden Costs and Smart Decisions
November 17 at 11:00 am US/Eastern (GMT-5)
Join Honorio Padrón, of The Hackett Group, who will share the drivers for companies to tackle application rationalization and the results of research that define the hidden cost of complexity. Additionally, we will discuss key decision milestones—to start or not, holding the course steady and fulfilling expectations.
Virtual Desktop Cost-Benefit Analysis — Michael Jacobs, Catlin Group
The analysis contained in this presentation measures the cost of everything from the machines and licenses to the infrastructure for virtual vs. traditional desktop environments.
Honor your best senior team members - Apply for the CIO Ones to Watch Award
Get well-earned public recognition for your top up-and-coming team members, your IT organization and your enterprise. Award winners will be announced, publicized and feted in May 2010, great timing to help attract new IT recruits to your company.
Learn more about the CIO Executive Council »PAGE 3
The final question of value is at the higher level: Does IT contribute to business value? To optimize its contribution to the bottom line, IT must install processes that ensure two things: that the enterprise is spending the right amount on IT, and that the IT budget is spent on the right things.
What is the right amount to spend on IT? The answer is certainly not found in industry averages of what others are spending (following the lemmings), nor in what was spent in prior years (which may be wrong).
In technical terms, the optimal amount to spend on IT is determined by funding investments (from best to worst) until the marginal internal rate of return drops down to the weighted-average, risk-adjusted cost of capital. In simple terms, the enterprise should fund all the good investments, and no more.
Obviously, "keeping the lights on" is a very good investment. Without it, the enterprise would grind to a halt. Beyond that, services and projects alike should be scrutinized to be sure they pay off.
IT, in isolation, cannot calculate the ROI of its products and services. Only clients can vouch for the value they receive from their IT purchases.
What can IT do? There are two things.
First, IT can ensure that clients are in control of what they buy and are accountable for spending the IT budget wisely. This means implementing a client-driven portfolio-management process.
Note that portfolio management is far more than rank ordering projects on an unrealistically long wish list. Clients must understand how much is in their "checkbook" (a subset of the IT budget), and what IT's products and services cost, in order to know where to draw the line. That is, they must work within the finite checkbook created by the IT budget as well as understand the deliverables that they will (and won't) get. Thus, true portfolio management is predicated on the above steps of defining IT's catalog, costing it, and presenting a budget in terms of the cost of its deliverables. Once all that is done, an effective portfolio-management process can be implemented.
Second, even if clients know the costs of their purchases and are working within the limits of their checkbook, they'll make better purchase decisions if they understand the returns on technology investments. IT can help clients estimate ROI of their proposed purchases. The cost side of the ROI equation was handled by calculating a budget by deliverables and rates. The remaining challenge is to quantify the benefits. Cost-displacement benefits (which include both cost savings and cost avoidance) are easy to measure. The real challenge is measuring the so-called "intangible" strategic benefits.