Defending the IT budget from constant attack in the form of cost reduction targets is something many CIOs struggle with. The common, but misguided, belief is that most CFOs are only interested in cost reduction and will prefer this over cost certainty.
“Lack of funds is not the main reason for not being able to invest in IT. It’s the inability to see value,” said Sanil Solanki, research director at Gartner.
The bigger problem is that an inability to justify value can lead to further cuts. Cost reduction targets are handed out to CIOs during or near the annual budget review. This cycle is repeated for a number of years until IT starts to expose the business to unnecessary risks or hinder the business from driving competitive advantage.
The CFO view of IT is mostly still as a cost center, and it may take creative influencing skills to change that view. Here are five effective ways to help you break out of this cycle of constant cost reduction, and to help obtain an increase in future funding.
Show the story of IT
You’ve heard the old rule, “Show. Don’t tell.” Use visual diagrams to show the financial journey of your IT department, including the past, present and the proposed future direction. Show that you have a long term plan, and that it is linked to the business strategy.
Provide external context
Use benchmarking to put into context the cost of your IT organization in contrast to others within the industry. These metrics might include total IT spending, cost-per-device, staff costs and the proportion of the IT investment allocated to “run the business” versus “grow the business”. Highlight areas of success and how areas of overspending will be tackled.
Gain credibility with a cash analysis
Accountants love analysis, so provide different views of the IT budget to demonstrate that IT costs are analyzed in multiple ways. One key concern of the CFO is the management of cash. A business can temporarily survive without profits, but it cannot survive without cash. A cash profile graph of IT can be used to determine how to structure supplier payments terms, so the business does not release cash during, for example, employee bonus payments or dividend payments to shareholders.
Market the success of IT
Use success stories to show how prior-year IT initiatives have delivered value, publish an annual report for the IT organization, hold an annual technology fair or test new and in-demand devices or services with the finance and accounting group.
Show the art of the possible
Demonstrate the “art of the possible” by communicating how extra funds could be used to drive greater business value. The aim is to leave the CFO thinking, “How much more value could IT drive if given more funds?”
Every interaction, every channel, and every engagement with the CFO should be seen as an opportunity to shape the image of IT as a value creator and not just a cost consumer.
Gartner clients can read more in the foundational report, Use Five Techniques to Defend the IT Budget and Demonstrate the Value of IT. Sanil Solanki will provide additional analysis on these techniques at the Gartner Infrastructure, Operations and Data Center Summit, 18-19 May 2015 in Sydney, Australia.