CFOs are usually quick to judge whether they think IT is successful or not, so it’s important to understand their perspective on IT–inside and out. They tend to pepper CIOs with questions like these: What technologies do other companies in our industry use? Should we change systems? How can we be more productive and, at the same time, save money on IT? Why is it taking so long to finish that email migration? Why are we still buying servers and maintenance–isn’t everything in the cloud? Should we consider this vendor or that technology?
Those are all good questions, but CIOs would be better off having conversations with the CFO that explain some fundamental realities about IT and help to manage expectations. Those conversations should cover the following ground:
Make sure your CFO understands the typical risk/return profile of IT projects and how you plan to manage the risk. Most CFOs think (as they should) that a dollar invested should produce a dollar plus a specific risk-adjusted return. It’s how they think about any investment, whether it’s acquiring manufacturing equipment, buying real estate or completing an acquisition. But IT has a challenging risk/reward profile that is frustrating to some CFOs.
Technology projects are frequently problematic. Standish Group says that 53 percent of IT projects overrun their budget and timeline, while 31 percent are cancelled. IT projects tend to be expensive, often riskier or harder to manage than initially expected. The return, in many cases, can be difficult to measure in the near term.
Those aren’t the kind of hard facts a CFO is looking for in an investment, so make sure your colleague is aware of these typical IT challenges and how you plan to address them. This should improve communication.
Know your capital and operational expense numbers, and how they compare to those of similar companies in your industry. Having a good grasp of how your IT spending compares to others’ takes a bit more homework than just benchmarking. Being below benchmarks may seem attractive to a CFO, but it may mean underinvestment in IT and signal greater costs down the road. Being above benchmarks may seem inefficient, but may represent investment in corporate growth or regulatory compliance. Know the specifics behind the numbers.
Know the company’s key business metrics and how IT contributes to them. If your company is in manufacturing, for example, you should know the sales goals and performance, average production rates, cost per unit, labor rates and other key measures. Learn what the CFO is typically going to be asked by the CEO, the board of directors and investors–then figure out IT’s impact on those metrics. Prepare the CFO with the answers to those questions before they get asked, and specifically cover what you’re doing in IT to improve business performance.
Understand the trends in your industry and how IT will help your company meet future needs. CIOs must be able to detect all types of trends that may affect how technology is used in the organization. As CIO magazine put it in a 2012 cover story: “CIOs are used to projecting technology trends. But being an in-house futurist will require CIOs to envision the implications of bigger changes: how workers work, how consumers consume and how suppliers supply.”
Understanding each of these concepts and the ability to succinctly articulate each to your CFO should improve your relationship as the key technology adviser. In turn, your CFO will be better armed to make financial decisions and make recommendations to the CEO, board of directors, banks and key investors.
David McLaughlin is president and CEO of Columbia Advisory Group, an IT management consulting firm.