Doing the IT Math

Michael Vizard

When it comes to defending the value of the internal IT organization, far too many IT leaders don't stand a real chance.

In a recent survey of more than 200 senior IT executives sponsored by Hewlett-Packard, nearly half said they did not have the necessary level of IT investment rigor and portfolio management in place to align IT investment decisions with business priorities. And with all due respect to the other half of the respondents in this survey, most of them are deluding themselves.

The gulf between the IT and finance department is getting wider every day. The simple fact is that all most finance people can see is that IT department consumes a huge percentage of the capital budget. And since getting funding is tough in this economy, the finance department wants to move more of the expenses associated with IT into the operating budget. The means relying more on providers of managed services, cloud computing platforms and software-as-a-service (SaaS) applications.

Unfortunately, most IT organizations today don't have the financial analysis tools in place to make an effective argument one way or the other. The end result is that a lot of decisions get based on some relatively rudimentary financial analysis coupled with a heavy dose of gut feeling.

Nothing in IT is black and white. Whether it is better to outsource a particular IT service depends on the nature of the service and how critical it is to the organization. But all too often IT people find themselves in business meetings trying to justify one project or another with nothing more than some back-of-the-envelope calculations wrapped up in a spreadsheet. More recently, vendors have been providing IT organizations with return on investment calculators, while others such as security vendor Courion have even gone as far to develop methodologies to help justify the acquisition of their products by highlighting all the potential cost savings within the framework of a company's existing IT budget.

Those are useful, but it's not nearly the same thing as running IT as business. Remember, the people that typically want to replace the internal IT organization work for an IT organization that runs itself like a business. In order to compete with that, the internal IT organization needs to same kind of IT financial management tools that external IT services firms' use. That's doubly true as we enter the age of virtualization, where every IT asset in the data center is about to become a shared resource. That means the cost of that infrastructure has to be measured against the benefits of supporting multiple application loads.

A small cottage industry intent on helping IT organizations financially justify their existence has recently begun to spring up with companies such as HP, Digital Fuel and Apptio leading the charge. There's also an IT Financial Management Association (ITFMA) that has been dedicated to raising awareness of these issues for over 20 years. What's changing now is that the tools for managing the financial aspects of IT are getting more sophisticated.

There is no way an internal IT organization can come up with a model that cost justifies the delivery of every IT service by the internal IT department. And while trying to quantify the value of IT might seem like a scary proposition, the effort actually gives the IT organization more credibility within the company as a whole. In fact, some IT organizations have even gone as far as to create their own internal finance departments.

In these tough economic times, internal IT organizations are not only competing against external service providers, they also need to compete against other groups in the business to hold on to their piece of a shrinking budget. Unfortunately for the internal IT departments, those other business units -- not to mention that external service providers-are all well armed with financial analysis tools. In contrast, the internal IT department all too often keeps bringing a knife to budget gunfights where the opposition is heavily armed with automatic weapons. What IT leaders need to start figuring out is how to even the odds.

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