To our friends at the TBM conference: This question may sound nuts.
When it comes to using software to manage costs, is IT the enterprise’s least equipped department?
While I’m paraphrasing, this is indeed the point of view of a white paper by the leading technology business management (TBM) solutions provider, Apptio. In a white paper published by the company, Apptio writes:
“IT has grown so fast so quickly, it hasn’t had the time to build in proper financial management systems or 21st century business processes.”
Every other department employs power tools
In the white paper, Apptio points out that the finance department relies on corporate performance management systems. Sales uses CRM solutions. Manufacturing has powerful ERP systems to ascertain the cost to produce widgets down to the penny—material, labor, facilities and operations costs included.
Why would IT be the low-tech department?
Put it down to complexity. IT operations are in constant flux.
- New systems and architectures are deployed regularly
- Most have significant infrastructure systems that are virtualized, making cost allocation blurry
- The cloud provides new supply lines for IT service delivery, which IT has to manage
And the pressure is on. The business units—IT’s customers—want answers to difficult questions about costs. They want bigger, better, and faster. They want lower chargebacks and greater value.
Clearly, calculating the costs of IT services with piles of spreadsheets doesn’t cut it. With antiquated tools at the center of financial management processes, time and money are burned in budgeting, forecasting and planning.
It’s time to run IT more like a business
According to Apptio, to effectively manage technology resources, IT must now run more like a business, with a focus on:
- Customer value
- Operational excellence
- Strategic relevance
A passage from the white paper reads, “IT needs to understand the total cost it takes to deliver services on an annual basis, communicate the costs, consumption and performance metrics to the business consumers, and have regular discussions on how the business values those services.”
Apptio claims most shops have poor data on the total annual cost to provide IT services. It’s impossible to identify the key IT cost drivers as well as identify opportunities to improve efficiencies.
The paper points out that successful manufacturing operations have rigorous processes and sophisticated tools to track and analyze production and supply costs at every step. And the process of scrutinizing spend is not conducted annually—or even quarterly. It’s a vital part of every manager’s job, every day.
The new CIO is a data master
CIOs must show the value of IT to the organization. Their credibility traces to their ability to run a financially responsible organization where investments align with the priorities of the business. Faced with monumentally challenging questions regarding ROI, ROA, CapEx vs. OpEx, and fixed vs. variable costs, the CIO must master the numbers.
What’s it take to make shrewd business decisions? To drive new initiatives? To prove certain decisions were good ones? The answer to all three questions is, of course, data.
The modern CIO needs to rely on data to manage IT business performance, drive cost optimization, and use data to prove success and drive important new initiatives.
“Today’s CIOs are not only being asked to operate with less but are now being pulled toward their internal and external customers. CIOs that remain focused on internal IT concerns are facing extinction.”
~ From “Transforming IT Through Technology Business Management,” a post by Colin Rowland on Datacenter Dynamics.
The inefficiencies are expensive
Realizing you need to manage IT like a business and doing it are two different animals. CIOs face serious challenges with system silos.
Costs of assets may be recorded in asset management systems, procurement, or general ledger systems
- Labor may (or may not) be tracked in service desk systems
- Separate project and portfolio management systems may exist
- Outsourcing charges tend to come in lump sums and don’t reflect how they’re allocated to IT services
Allocating to IT services is often a manual process and undertaken only when it’s time to do budgeting. Data collection devours weeks. Apptio’s paper claims, “It is reported that IT and finance organizations can typically expend up to 10% of available staff hours on budget projects during forecasting periods.”
When the digging is complete, at best, costs are discovered in single point in time. In reality, the conclusions are only vaguely accurate and quickly out of date.
The result: financial reports are inaccurate. The data is hard to trust. It’s seldom widely distributed. This is no way to drive improvement decisions. An obvious irony emerges: the process of improving the efficiency of IT services is, in itself, dreadfully inefficient.
Enter technology business management (TBM)
“The only way to improve ROI estimates in new projects is to increase visibility into costs associated with the existing approach, because if you can’t measure what you are paying today, you can’t estimate what you’ll save tomorrow. Therefore, IT organizations must start to build cost models for their existing infrastructure, which isn’t as easy as it sounds.”
~ Excerpt from “Counting the Cost of the Elephant in the Data Center,” a Gartner report by Burton Group Senior Analyst Nik Simpson.
Leaders in the newly emerging space are dubbing the new set of tools for achieving greater cost transparency “technology business management” and “IT business management,” so you’ll need to live with two monikers during the shakeout. Regardless of the name, we do indeed have a relatively new species of software-based solutions aimed at providing IT organizations deep visibility into the costs and cost drivers of IT services.
Apptio speaks of three areas in which IT organizations benefit from the tools:
- Achieve IT service cost transparency
- Communicate the cost and value of IT
- Budget, forecast and plan
The company describes its portfolio as a suite of five applications: IT service costing, bill of IT, benchmarking, service quality and utilization, and budgeting and forecasting.
Similarly, VMware describes its integrated ITBM solution as service quality management, IT financial management, and business management for the cloud. (This reflects the enterprise version of the SaaS-based suite.)
Where to learn more about technology business management
Visit or join:
The Technology Business Management (TBM) Council is a nonprofit organization led by CIOs to create and promote best practices for running IT as a business.