Recently, I conveyed the elements of a comprehensive return-on-investment program to the IT organisation of a small but fast-growing company. The presentation included how a financial forecast looked, how the company needed to plan for change when the metrics in the forecast hinted at it, and why the auditing of actual post-investment returns was a good idea.
About two-thirds through, one of the senior IT fellows interrupted me, questioning the willingness of business units to adopt these practices. “Glad you asked,” I said.
I turned the question around and asked why the IT group — curious enough about better practices in IT management to have me come in to demonstrate some techniques — couldn’t evolve into a value-added business partner that could help business units with economic value management tasks.
For example, a business unit would request a custom or packaged application, and IT, working in partnership, would deliver an economic forecast, change management tactics and perhaps a method for quantifying the intangible ROI and a post-investment audit capability.
The IT executive smiled, nodding in agreement. Could his response have been more out of politeness than conviction that what I said was tenable at his company? Yes, talk is cheap.
Overlooked but very much needed amid all the buzz about quantifying financial returns on IT investments are answers to some basic questions. Who is willing and able to roll up their sleeves and get into the mechanics of building a forecast? Who will build consensus for the metrics to be included in the forecast? Who will document the potential organisational and business-process change some software is sure to inject into the company?
In other words, who is going to champion a consistent, repeatable IT measurement program and see that it happens and thrives?
Theoretically, there is no reason why economic value management practices can’t originate and become operational in the IT organisation. But the politics of the situation say otherwise.
In reality, the broad trend has been for such a management course to originate in business units, which increasingly have control over discretionary IT budget expenditures. The IT organisation’s budget, meanwhile, is largely confined to life-cycle management expenditures, upgrades, replacements and maintenance.
However, with control comes accountability. Lines of business can chart their technological destinies, but senior management is also holding them accountable for the returns their investments deliver. This compels business units to manage the risks and uncertainties of their investment decision-making. This is accomplished by adding clarity to these decisions — economic forecasts, metrics construction, the whole measurement megillah.
Now, square the budgeting trends and related measurement responsibility with an equally important reality showing IT’s genuine interest in busting out of its utility services role. In the case of this high-growth company, the IT group aspires to participate at a more strategic level.
Contemplate the tension: budgeting realities are driving accountability (meaning ROI mania) to business units, while IT seeks to participate more fully in the strategic affairs of the company by playing a larger role in ROI measurement and related activities. The business side might very well wish to relinquish measurement to IT, but senior management is saying, “You want that $500,000 CRM application? Then you show me the value, since you have the budget.”
As it turns out, this company’s IT budgeting is centralised, not in defiance of the trend, but most likely because of its size. As its revenue grows, as its need for complex applications grows, it might decentralise budgeting too. Today, IT in this company is excited about the chance to lead a transformation effort that embeds forecasting and measurement in investment decision-making.
Business units that avoid the heavy lifting of IT economic value management, pinch yourselves. This scenario is probably not the future.
John Berry is an IT management consultant and is writing a book about the measurement of intangible assets