Recession proof approach to managing IT spending

InfoWorld is listing five outside-the-box ways to cut IT costs, a topic which is sure to resonate in this week’s economic climate. While the recommendations make sense, their approach perpetuates an outdated and problematic relationship between the CFO and IT. Instead of focusing on across the board budget cuts, placing IT on a level playing field with other business functional areas, it might make more sense to look hard for savings opportunities within the core business functions and evaluate the total costs of operations for finance, HR, Marketing, etc. IT capital expenditures and support costs would be modeled into the total cost of ownership.

We’ve seen this TCO analysis work well for our private equity clients, who have varying tolerances for capital expenses versus ongoing costs, so we typically provide them with a month by month CAPEX projection for the transition period, and an estimated monthly operating cost model that includes IT, BPO monthly fees, and FTE costs for running a particular segment of the business.

When business decisions are made within the framework described above, strong leadership is required to align competing stakeholder needs. Instead of IT project teams, we pull together business transformation teams that serve up the necessary information (costs, risks, organization impact, business process impact, regulatory concerns, etc.) so that major business initiatives can be evaluated from multiple perspectives:

Business Architecture perspective: How does the proposed project impact the organization structure and the business processes? This perspective is owned and represented by the COO and the executive leadership of the affected business functions (e.g., HR, Marketing, Sales, Product Development)

IT Architecture perspective: What are the impacts on our enterprise IT architecture and its interfaces with third parties? This perspective is owned and represented by the CIO.

Financial perspective: What are the CAPEX and ongoing costs? What is the estimated impact on revenue? This perspective is owned and represented by the CFO.

A project execution framework should allow for multiple checkpoints for these key stakeholders to approve the scope and direction of the project over the course of its full lifecycle.  The approach makes sense for any business, but within the private equity portfolio, it can be the key to driving asset value in ways that pure financial engineering approaches are unlikely to attain.

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