Delivering business value: The key to making hard decisions

Almost all IT leaders have less money to spend on staff, on supporting applications and ongoing projects. So if their IT budget is cut by 10, 20 or even 30 percent, how should they act?


Organisations everywhere are trying hard to target their precious budgets into projects which will either cut costs or deliver increases in revenue.

New projects face tighter scrutiny before sign off, while those already underwaywill be re-examined to ensure they are delivering value.

Almost all IT leaders have less money to spend on staff, on supporting applications and ongoing projects. So if their IT budget is cut by 10, 20 or even 30 percent, how should they act?

There are two main areas for action. Many decision makers will look at streamlining operational spend by re-examining the amount of funding carved out for maintaining existing applications and systems. To this end, there are several techniques which, if followed, will ensure that the right areas of operational spend is targeted for cost cutting, as discussed later in this article.

However, it is more likely that IT leaders will begin by assessing their current in-flight projects and their backlog of projects in the pipeline (for we all know that there is always a backlog of projects for the IT department!) in order to target projects which can be mothballed or axed altogether. It is crucial to the business that the right projects be selected for such action, and criteria be agreed with the business that leads to a joint selection.

It is also crucial that the resources associated with such projects are considered carefully in relation to their impact to the business and the operational area of IT before any drastic action is taken so as to prevent cannibalising the core business activities. However, whilst IT directors will never intentionally cut resources from a business critical project, this could be an unwanted side-effect if rigorous planning, risk management and due diligence is not in place.

First and foremost, IT leadership need visibility across a broad spectrum of projects in flight, projects in backlog and existing operational work. IT directors need to know what projects are going on and where every pound is spent. This doesn’t just include staffing, but every single existing project and planned project for the year ahead. Fundamentally, IT leadership need a ‘single pane of glass’ on all IT spend and operations. However, this visibility is more than just a nondescript list of projects.

It needs to go much further and articulate the contribution to the business of each project or wotk item in terms of a tangible return to the business which is fully aligned to present day corporate objectives. In addition, it aids decision making if additional information about investment, timescale, effort, skills, supportability is also captured about each project or work item. This requires IT to talk with the business to agree on business value, and helps in communicating the value being provided back to the business when new applications are launched.

However, gaining this visibility is only the first step. It’s no use having complete visibility if you don’t have a system, agreed and understood by the business as well as IT, for prioritising in-flight and backlog projects in terms of value to the business.

IT staff who know what is going on, but can’t prioritise these projects in some way will tend to run by ‘decibel management’, prioritising projects based on whoever shouts loudest and most persistently at them. The danger is that these people and their projects may not be the most important; whilst they may have a loud voice, if their project or problem is not business critical, it shouldn’t be first on the list.

So what do IT decision makers need in order to reach this level of understanding? Once they understand where the money is going, in terms of IT projects, they also need to know how these projects contribute to the business. In a best case scenario, the IT director needs to be able to say exactly how each IT project contributes to the bottom line of the business.

For example, if a courier company is switching from clipboards to mobile computers in order to record van loading inventories, they need to know how much time will it save, what the value of this time is and whether it will have any other cost-saving benefits. Indeed, the flip side of the coin, namely revenue generation, should also be examined, estimated and calculated. Implementing the mobile computation system will also undoubtedly improve parcel throughput which will also improve revenue to the business.

This is not necessarily an easy process to accomplish, particularly with some IT underpinning more than one project, and synergies between existing projects. However, once the company has visibility, the IT team will have a better idea of how each project contributes to the bottom line of the business. Whilst this may not be a simple picture, it will at least be quantifiable and based on fact.

Secondly, and initially referenced above, IT leadership should also be scrutinising their ongoing investment into ‘keeping the lights on’ or operational spend. For example, it may be that certain applications are only being used by a small number of staff, and consequently the investment in support for that application can either be significantly scaled back or retired completely. IT directors may also find that they can make savings on licenses for newer applications which have not been developed in-house.

These decisions will also percolate through to team and personnel management. Once IT directors have visibility of all ongoing projects, with both their IT and human resource requirements, they will be able to see if any key team members are being under or over used.

Consequently, they can re-allocate people to more critical projects. For example, if a specific application is being retired, the team member responsible for maintaining or using this application can be used elsewhere on a project which is more business-critical. However, it is only by gaining this overall understanding of all ongoing projects that IT staff can be in a position to make these decisions in an informed fashion.

This understanding will both allow IT directors to prioritise projects based on their actual financial importance, as well as helping IT teams to engage in discussions with business stakeholders using a language which is meaningful to them.

This understanding will also provide a valuable foundation for future collaboration. Business stakeholders will be able to understand how IT projects should be prioritised and ranked, helping them to buy in to the projects in a way which makes sense to them. Also, because of this buy-in, business teams and IT teams will be able to share responsibility for deciding which projects to keep and which to cut.

This shared responsibility, combined with the visibility and understanding of how important projects are, gives business and IT teams a solid foundation from which to rationalise and explain why projects have either been prioritised or discontinued.

Communication is key to this process and getting joint buy-in from managerial teams, IT staff and users is essential in order to agree which compromises are acceptable, and which projects and operational expenditures are critical to the business. The dialogue between IT and the business will be conducted in terms understandable to both, decision making will be collaborative and based on agreed business value. Whilst this will not be an easy process, it is the only way to maintain the business through tough times, and also a solid foundation for making the IT department more tightly integrated with core business functions in years to come.

Tukun Chatterjee is ITPM Director at Compuware

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