A new Butler Group report has identified that in many organizations just 8% of the IT budget is actually spent on initiatives that bring value to the enterprise. IT management must make a conscious effort to measure and monitor IT investment, and then endeavor to increase the proportion of spending on enhancements and new services designed to transform the organization or grow its overall value.
An inordinate amount of IT executive time seems to be expended on measuring and controlling costs rather than focusing resources on initiatives that will add value to the organization. Those IT departments capable of measuring performance are in the minority. Small wonder then that IT remains isolated, misunderstood, and treated simply as a cost center by senior management. This absence of measurement means that most organizations have no idea whether investments in IT are providing increased efficiency, added value, or competitive advantage.
IT management lacks value driver focus
There is increasing prominence being placed on the ability of IT deliverables to match organization objectives. Unfortunately, there still appears to be a lack of focus by IT management on understanding the organization’s main value drivers and corresponding IT capability. Without this it is impossible to formulate an IT strategy that will meet the organization’s needs. IT must improve transparency and visibility, with accountability for performance related to organization value drivers.
Most organizations have very little visibility into IT performance. This needs to change, due in no small part to the growing compliance and regulatory pressures, which means IT management having the ability to prove the department is being run effectively and offering value. To provide this transparency and accountability, many enterprises are turning to governance as an important mechanism for controlling the organization. The deployment of IT governance is recommended for providing a framework for measuring IT costs.
Absence of tools and methods
To enable IT management to get their message across to stakeholders and internal staff, good communications are paramount. This is where methods such as enterprise architecture, business cases, and balanced scorecards come into their own. A well-prepared business case is a way of putting forward project details in a standard format, which helps purvey professional competency and makes it easier to compare projects. Balanced scorecards can provide a mechanism for monitoring and conveying IT performance that simply encapsulates the state of the IT environment.
In order to provide the required levels of transparency, IT management must put in place the foundations of well-managed IT assets, comprising infrastructure, processes, and skills, along with the use of automation, which form important enablers for successful measurement processes. Ad hoc manual methods based on spreadsheets are no longer acceptable or a practicable solution; especially as data quality for accurate and comprehensive IT reporting is now crucial.
In order to reach the required level of consistency the deployment of an integrated toolset and common repository must be an area of focus, as is the setting up of feedback loops and dashboards.
Organizations have become quite competent at measuring IT costs, but not the value. It is imperative that IT management is able to gain an understanding of the level of IT spending that brings value to the organization. The challenge for IT management is to supply services that can support the organization’s growth requirements, while minimizing the amount spent on running IT.