Amidst nonstop, intense, worldwide competition, IT is in the crosshairs for cost-cutting initiatives. That is why senior management needs a full understanding of how much the CIO is spending and what benefits the business is getting for its investment.
Without the right level of detail, IT management does not have enough information to determine which IT services could be provided more efficiently through outsourcing, on-demand services, or from the cloud.
Managing, understanding, and delivering all the data related to IT spending requires far more detailed and integrated information about assets, applications, projects, and IT service spending than is available from most enterprise resource planning (ERP) systems.
When ERP Is Not Enough
It is only natural for a CIO to assume that an ERP system can provide the integrated and detailed information needed about IT costs and benefits, especially after the CIO has spent millions implementing it.
However, in many companies, the IT organisation can have far greater needs than other business units to track capital assets and operating expenses. Every server, storage array, and network switch represents a capital asset that must be amortised over time.
Sometimes software is also a capital expense, requiring the tracking of different types of licenses for different classes of users using various modules within multiple software packages.
All of these expenses are accounted for within broad entries in the ERP system. However, they are often not recorded in the level of detail or in the context needed to track and manage those resources, or they are not described in a way that allows IT managers to link those line-item expenditures with the kinds of processes and activities managed by IT.
Most ERP systems, particularly when used for finance and accounting, record the spending for servers, storage arrays or network switches under the broad line-item category "total cost of hardware." They do not provide a way to link specific physical assets to a line item in the budget or to the depreciation schedule for those assets within the financial fixed-asset area of the accounting application.
Since the ERP system does not provide this level of detail, many IT organisations use spreadsheets to track the lifecycles of specific capital assets, which are notoriously difficult to keep up to date. It is also more difficult to maintain consistent standards for describing and classifying purchases using such ad-hoc spreadsheets.
When you are not able to easily associate line items with physical assets, it is more challenging to estimate project-related costs such as maintenance, replacement, software licenses, and network bandwidth, and to improve the accuracy of the budget process.
Big-Picture View and Better Business Decisions
One way to address the challenges discussed here is through an IT business management solution connecting the systems that store detailed information about assets with the corporate accounting system and describing them in a way that IT can understand.
When IT administrators can get an accounting perspective on their IT assets in terms they can understand, it is far easier to identify and correct budget variances, plan future purchases, and save money in ways that will not have a negative effect on critical business processes.
By identifying in greater detail which IT resources support which business functions, the CIO can discuss proposed reprioritising of spending at the level of business services rather than at the level of hardware or software spending.
In addition, the CIO can ask the business owners to prioritise their desired level of service related to availability, performance, or other service levels. With a more detailed and current view of the assets IT owns and how close these assets are to retirement, the IT department can help the entire business make more informed decisions.
Insist on the Appropriate Solution
IT departments can become much more valuable to the business by using the right tools for managing highly complex financial processes and facilitating better decision making.
In order to identify which spending is essential and to verify the accuracy of budgeting, CIOs should consider implementing a business management solution that not only provides the detailed lifecycle information (which spreadsheets and general ERP systems can lack), but also provides the ability to improve planning, budgeting, and analysis.
By taking this approach, the IT department can control costs, increase cost transparency for IT and its customers, make more informed decisions and help meet the needs of the business more effectively.
Karen Garcia, Information Services and Technology (IS&T) Chief of Staff, BMC Software.