Managing Business Demand Is The Keystone For Managing IT Cost

Opinion

Feb 18, 20093 mins

Enterprise Applications

Recently, I’ve had a number of conversations with CIOs and senior IT staff on the pressures caused by business belt-tightening.

This, of course, has cascaded to IT in the form of the need to cut. Favorite targets: new investments, whether for business-sponsored projects or infrastructure, followed by ‘IT overhead’ – travel, training, IT improvement programs, followed by opportunistic cuts in the operations budget. For most I’ve talked with, they have their budget for 2009, but are still watching for the request for further cuts.

Now, the hard part has started for them. As one said “having less to spend means I need to work harder to make sure it’s spent wisely’. The problem isn’t just one of picking areas to spend on, but also in making sure that the business execs who are getting more involved in these decisions agree it’s being spent wisely.

I constructed this formula to help the conversation. It basically lays out what I call the IT’s ‘cost/capacity/demand’ challenge. Perceived business value is business management’s belief that they are getting good value from overall IT spend. It’s a function of aggregate business demand; not just projects but also tactical requests for application enhancements, or expectations for service quality – spread over available capacity; both staff, external services and infrastructure capacity – at a particular cost. The cost is IT spend, and when spend goes down, capacity goes down.

The challenge comes from three factors:

*Business doesn’t see capacity – it only sees cost. This is like understanding the cost of a factory, but no idea as to how much the factory is capable of producing. Business only loosely understands the impact of quality on capacity, and has a foggy notion at best of how ‘fungible’ this capacity is – how easily it can be redeployed in response to demand.

**Business demand always exceeds available capacity. You can’t ever provide your business partners everything they want – especially true as their expectations for technology grow

***Perceived business value comes when they see how capacity being applied to the highest aggregate value of business demand – the most important outputs for the business.

The end result of all of this is that they don’t see the connection between their strategic, tactical and operational needs and IT’s cost to them. They play a less constructive role in decisions and are less happy with the result. And they ask for cuts without understanding the implications. OK – your CEO or CFO might understand this – but the understanding plummets once you go outside the C-suite.

The way out of this is for CIOs to make the connection clearer. In my conversations, I suggest five actions:

Map IT costs – both investment and operational – to categories business understands and cares about. I recommend mapping to business capabilities.
Manage and report on business demand holistically, and in relationship to capacity and cost.
Make sure it’s business, not IT, governance of all technology decisions. Use this as a discipline so that you clearly communicate the ‘why’ of decisions.
Address IT communication strategically – don’t assume stakeholders even know why they are important to the IT-business relationship.
Organize around services business can assign value to, not services as IT sees them. No more ‘mainframe services’ – ‘sales support services’ instead!

Do you agree with this list? Do you have ideas as to how to attack these actions?

By Alex Cullen