by Susan Cramm

Architectural Flexibility and Activity-Based Costing

Dec 01, 20052 mins

Reader Q&A

Q: If CIOs are to improve architectural flexibility, isn’t it really business executives rather than the IT group who need a big attitude change? Left to their own devices, most CIOs would install reusable, scalable systems that integrate with an enterprise architecture, but they are undermined by businesspeople who cut deals with vendors and refuse to consider the needs of the whole.

A: It’s convenient to lay this one on the shoulders of the business executives, but that’s a cop out. In most organizations, IT defines the alternatives for systems, and if the “fast and dirty” alternative is not on the table, the business counterparts wouldn’t know the difference. It’s usually disagreements within IT about the best approach that become visible and that the business can latch onto. Some of these disagreements are valid—for instance, it’s unreasonable to decide to be architecturally flexible on the next project without doing the necessary spadework beforehand, such as understanding the core business processes and strategies, identifying key services and data, selecting and implementing tools, and running internal pilot projects to test concepts. Again, the ability to carve out funding for this R&D is a CIO’s responsibility. A best practice is to create R&D funding by reducing the “lights on” cost of IT.

Q: Activity-based costing (ABC) seems like the ideal for IT, because people pay for what they get. What causes ABC initiatives to fail?

A: Imagine having to post every item purchased or hour paid not only to a general ledger account code and department, but also to a customer, product, project and so on. Minor accounting decisions can have huge implications for data management and can even cause an ABC system to melt down due to lack of compliance, traceability or accuracy. With ABC, perfect oftentimes becomes the enemy of the good. With activity-based budgeting (ABB), it’s easier to maintain the big picture and not get lost in the data. Remember that the big picture is to understand what 20 percent of projects, services, systems, customers, processes and assets are driving 80 percent of IT costs.