Take a New Approach to IT Cost Management

September 26, 2018

Contributor: Susan Moore

First demonstrate effective IT cost management, then partner with the CFO to use technology to optimize enterprise costs.

Too often, when CIOs attempt to focus on using IT to optimize business costs, stakeholders see it as a defensive move. You’ll hear the heads of other business units mutter, "IT can't find enough money to cut in its own budget, so they’re coming after ours.”

Building an effective partnership with the CFO helps mitigate this issue, says Jim McGittigan, Research VP, Gartner. “Generally speaking, CIOs haven’t demonstrated effective IT cost management to their CFOs' satisfaction,” says McGittigan.

“A lack of understanding of the contribution of IT to strategic business goals often leads to cost cutting and not true cost optimization.” This belief must be flipped on is head to successfully fund innovation and digital business initiatives, McGittigan says.

Read more: Make Financial Transparency Your Cost Optimization Foundation

Run IT like a business

First, demonstrate good fiscal practices that optimize existing IT spending. Then market your financial management achievements to earn credibility to help with optimizing business cost. Partner with the CFO to assess where technology can best be deployed across the enterprise to minimize cost and maximize value at an acceptable level of risk.

“ On average, 81% of IT spending is in a CIO's budget”

The tendency for both parties is to focus the conversation on optimizing the IT budget. This is critical, but success in going beyond the IT budget requires seeing the potential value to the enterprise if IT is allowed to help. “Take responsibility for shifting the dialogue,” says McGittigan. “By being able to demonstrate the IT organization's ability to manage and optimize the IT budget, you can then focus on opportunities to optimize cost and value in other budgets.”

Build an effective partnership

There are four steps you can take to build an effective partnership with your CFO.

Step 1. Optimize the supply side of the IT budget

The typical general ledger may be limited to an asset-based view of the world – labor, hardware and software – split between operational and capital expenditure. However, this is the world that the CFO lives in. Do the basics of budgeting, forecasting and contract management well enough to effectively manage IT costs from the CFO's perspective. Build practices that support effective fiscal management and ensure budget accountability throughout IT.

Step 2. Provide visibility to stakeholders

It’s difficult for enterprise stakeholders to understand the value of IT if you only talk about assets, opex and capex. Create a service catalog in client-facing terms such as projects, products and services and give stakeholders a choice where possible to help manage demand. CIOs can use benchmarking to explain the root cause of increases in technology spending. Hint: often the root cause is the demand or volumes, not the rate or cost of the service.

Step 3. Work with the CFO to optimize IT spending

On average, 81% of IT spending is in a CIO's budget, with the remaining 19% split between sanctioned business unit IT spending and unsanctioned spending or shadow IT. Work with the finance team to build effective governance on all IT spending across the enterprise, while avoiding a command-and-control mentality.

Step 4. Use technology to optimize business costs

Create a joint task force to evaluate and select opportunities, focusing first on traditional IT opportunities and then evaluating new technologies outside of traditional IT. The 2018 Gartner CEO and Senior Business Executive Survey showed that CEOs intend to invest more in technology. CIOs who manage IT supply-side spending, while influencing the enterprise to optimize IT demand-side spending, should be rewarded by the CEO and CFO with additional budget to fund IT innovation projects. The end goal should be to effectively optimize all enterprise costs, both IT and business costs, through the effective use of technology.

Experience Information Technology conferences

Join your peers for the unveiling of the latest insights at Gartner conferences.