Optimizing the IT Investment

Responsible corporations want to ensure they are spending wisely, including spending on Information Technology (IT). Whether getting the most bang for the buck or battening down the hatches, proper management and oversight of IT expenditures is critical to IT and business success. Even in times of flat or shrinking budgets, strong IT Governance yields the optimal resource allocation.

Organizations face a primary challenge ensuring that capital allocation to new IT initiatives aligns with business objectives. Corporations that fail to manage IT capital expenditures suffer profound consequences to the top and bottom line. Some instructive examples include:

• In 2008, Sun Microsystems posted a $1.68 billion loss on an impairment charge, due in part to a failure to successfully integrate its acquisition of Storage Technology Corp.
• In 1999, Hershey Foods experienced a 12% drop in revenue and 27% market share loss as the direct result of a failed system implementation.
• In 1996, a failed IT project at FoxMeyer Drug led to the collapse of the entire $5 billion company.
  Corporations must manage IT capital expenditures with a proper structure and process to decide how to allocate funds – a Governance process. If the process is too casual, decision making will not be scrutinized with adequate rigor. But a draconian approach may lead to a lack of process support and unnecessary bureaucracy that paralyzes the progress.

Developing the Business Case
Just as critical to Governance is determining what information will be used to decide which initiatives are pursued. This information is often detailed in a business case. A business case typically includes a project summary, cost benefit summary, opportunity definition, recommendations, justification, implementation plan and alternatives considered.
Potential financial measures used for the decision package cost-benefit analysis are numerous. All of the choices carry with them risks, particularly if they are not properly applied.

There are also the issues of indirect and intangible benefits.

• Should they be included and if so how?
• Is time saved a benefit or is it only a benefit when there is a net reduction of staff?
• Are better customer relationships a benefit or are they a benefit only when better customer relationships result in increased sales?
• How do you measure increased productivity?
• Can cost avoidance be quantified?

Successful Governance Strategies
It is natural to ask, how can I establish the right governance that will work for my firm? Many factors, including those above, must be considered when developing a Governance program.

How is IT work currently being performed? Determine the organization, the technical architecture and the manner in which IT communicates with the rest of the organization. Determine how IT currently carries out its duties including how requests for service are handled and what tools are being used to manage service requests. Understand how IT supports the business strategy, how IT manages its application assets and how those assets are supported. Finally, it is important to understand the current backlog, if any, and the mix of maintenance versus new work.

How are decisions made at my firm? Review any extant decision making bodies in the business as models for a similar IT governance structure. Determine how business cases are prepared and used. Discover if there are any decision trees, hurdle rates or processes that are used to make investment decisions. Evaluate the adaptability or adoptability of existing processes. Using an existing process can be an efficient way to launch an IT governance program.

Several key elements are important for efficiently and effectively deploying IT resources in support of an organization’s business objectives. They include:

• Active top management support
• One or more decision-making bodies with clear charters, processes and authorities
• An approach to service request segmentation that ensures that executive management is focused on the most important matters and that lower-cost service requests are appropriately delegated
• A business case development process that ensures adequate participation prior to presentation for decision
• Inclusive cost estimating of all activities, whether performed by internal or external resources
• Facility for charging users for requested projects to ensure true value
• Data collection processes that enable clear reporting of key activities
• Comprehensive reporting of key IT delivery metrics, including resource utilization and project status
• A process for IT strategy, business plans and budgets, project progress, and post-implementation reviews

Management and the organization must adhere to the governance process. Changing corporate priorities and a reluctance to say “no” can lead to dysfunction. Management needs to see the necessity, buy into the process(es) and support the requirement for the process(es).

There are three keys to a successful governance process. Your governance process should:

1. be simple yet effective;
2. get in line with the needs of the organization; and
3. obtain ownership and buy-in from the organization decision-makers.

The development and implementation of a viable Governance program and processes is often such a paradigm shift for an organization that expert assistance may be required. Transition Partners has assisted numerous organizations to create and deploy effective and efficient Governance programs. Please contact us if you would like additional information.

IT MANAGEMENT		IT EFFECTIVENESS		SOURCING
CIO Advisory		Effectiveness Assessment		Sourcing Strategy Development
Interim Management		Strategy and Alignment		Sourcing Advisory
Governance		Project Assessment
Program Management		Organization Transformation
Mergers & Acquisitions     Planning and Integration		Business Process Reengineering
Business Continuity

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Transition Partners is a highly regarded national IT management consulting firm comprised of former CIOs and senior IT executives, primarily from Fortune 100 companies. For more than 10 years, our people have brought efficient, effective and practical – rather than theoretical – solutions to our clients. We have a passion for tackling tough and interesting IT and business challenges and for working as part of your team to set a course of action and implement solutions.

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Transition Partners
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Reston, Virginia 20190
703-736-0550 office
703-736-0553 office fax

Transition Partners' Quarterly Newsletters are available as PDF files.  Check the issues you would like to download and click the Submit button.
	May 2008 "It’s still the economy...!" 10 Ways to Cut Costs Now
	May 2007 "IT Portfolio Management"
	February 2007 "Mergers and Acquisitions: Planning and Execution
	October 2006 "Collaborative Outsourcing— Focusing the Outsourcing Solution on Your IT Challenge"
	July 2006 "Managing Innovation and Technology"
	April 2006 "The Information Technology Effectiveness Assessment"
	December 2005 "Sole Source Propositions – The Value of 'A Second Opinion'”
	June 2005 "Effective IT Strategies for Mergers & Acquisitions”
	June 2003 "Technology Tips and Techniques: Enterprise Systems"
	March 2003 "Technology Tips and Techniques:  IT Merger Strategies"
	December 2002 "Technology Tips and Techniques: The Outsourcing Decision Process"
	September 2002 "Technology Tips and Techniques: 6 Ways to Cut Costs in 6 Months"
	June 2002 "Technology Tips and Techniques: Business Continuity Planning"
	March 2002 "Technology Tips and Techniques: Governance"

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