Defending the IT budget from constant attack in the form of cost reduction targets is something many IT Managers struggle with. The common misguided belief is that most CFOs are only interested in cost reduction and will prefer this over cost certainty. Cost reduction targets are handed out to IT Managers during or near the budget review. This cycle is repeated for a number of years until IT starts to expose the business to unnecessary risks or hinders the business from driving competitive advantage. The following Gartner research reviews the five most effective ways to help an IT Manager break out of this cycle of constant cost reduction, not only to defend the IT budget but also to help gain an increase in future funding for IT. The five key techniques are:
1. Tell the financial story of IT with a past, present and future review of IT.
One of the key principles of building credibility with the CFO is demonstrating a track record of success. The CFO will look more favorably to areas of the business that demonstrate success and is much more likely to assign funding to these areas. A graphical representation of this can help the CFO visualize the story of success.
2. Use External Key Metrics Data to position IT costs.
Use of external benchmarks also communicates to the CFO that it is not enough to look only internally for best practices. The culture within IT is to look externally for best-in-class ways to optimize and, therefore, help drive more value to the organization. An effective way of communicating this is by using industry models/metrics to help communicate the future plan and help the CFO visualize how this will be monitored and tracked. The goal is to plant the seed of what new investment in IT would be allocated to and how this could drive more value.
3. Gain credibility with the CFO by performing a cash analysis of the IT costs.
This third element takes a financial view of the IT costs and communicates to the CFO that IT doesn’t simply ignore the concerns of the wider business. One key concern of the CFO is the management of cash. A business can temporarily survive without profits, but it cannot survive without cash. Therefore, taking the steps and then demonstrating to the CFO that IT proactively managed its cash profile will further enhance IT’s credibility.
4. Market IT by communicating the value generated by IT from previous investments.
Following on from the first three principles, we have established that IT can control costs, manage cash and think long-term about budget management. Enhancing this view with some success stories from prior-year initiatives or investments is another way of marketing the capability of IT and, thus, crafting a situation in which the CFO feels that assigning any further cost challenges to IT would actually be detrimental to the business. Ways to better market IT can include success stories, an annual report for the IT organization, annual or periodic technology fairs, the testing of new and “in-demand” devices with the finance and accounting organization, an advanced technology group to guide the CFO in options to close the books and accounts quicker, or an IT-business service portfolio and catalog that customizes the IT services to the CFO‘s primary business capability. Although marketing IT will be different based on the target (CFO) and the enterprise, every interaction, every channel, and every engagement with the CFO should be seen as an opportunity to mold the image of IT as a value creator and not just a cost consumer.
5. Define the art of the possible, and communicate requests for new funding.
After showing some case studies of how well projects are delivered in IT, future requests for funding new projects can then be made. The aim is to leave the CFO thinking, “How much more value could IT drive if given more funds?” Therefore, prepare a plan for how IT would utilize an extra 5% to 10% increase in funding. Determine what projects IT would initiate, which areas need investing in, and what business risk this could help reduce. Often, displaying the art of the possible will be done not just with the CFO, but with other enterprise stakeholders, in which positive business outcomes are created in other parts of the business, and this is communicated back to the CFO.