The effectiveness of IT investments
Posted on 11 March 2009.
Whilst economic pressures have put the spotlight on short-term IT cost savings, according to a new report by Butler Group, of even greater significance is the longer-term emphasis on the strategic management of IT costs, as well as getting value from existing and new IT investments.

Titled “Managing Costs in IT Report – Maximising the Value of IT Assets and Budgets”, the report identifies that for IT management there is a continual balancing act between cost, quality, and risk. Cutting costs too deeply could impact service quality or open up the organization to unacceptable risks. It should also be remembered that customer satisfaction remains an important business imperative. An area that has long been undervalued within the IT function is risk management, and this too, in Butler Group’s view, should start to move higher up the agenda.

To provide this transparency and accountability many enterprises are turning to governance as an important mechanism for controlling the organization

Butler Group recommends the deployment of IT governance which should be used in conjunction with the corporate governance initiative and employed not just for compliance and management reasons, but also for providing a framework for measuring and controlling IT costs.

“It is not a question of how much is invested in computer systems but the effectiveness of the spending. Most organizations have very little visibility into IT performance”, says Mark Blowers, Enterprise Architectures Practice Director and co-author of the study. “This needs to change – due in no small part to the growing compliance and regulatory pressures, which entail IT management having the wherewithal to prove the department is being run effectively and offering value. To provide this transparency and accountability many enterprises are turning to governance as an important mechanism for controlling the organization.

“The effectiveness of IT investments is a very significant factor in the ability of IT to provide value. Organizations must establish a clear IT service model against which costs can be allocated and performance monitored, including establishing a baseline for both these attributes. Most importantly, this measurement should then be linked to business activity, which enables rational decisions on IT cost management to be taken and understood in the context of business operations and objectives.”

Organizations will need to be selective and initially opt for those initiatives that will achieve the best returns in the shortest time period

IT projects should not be viewed in isolation but looked at holistically as one element for improving the effectiveness of the whole organization. What has been found to work well is incorporating IT projects as part of organization-wide initiatives, where the IT element is an enabler rather than the main driver. A good Portfolio Management solution helps an organization select the right blend and balance of IT investment, as it is critical that those projects are selected that make the best use of both limited financial and human resources, and which provide the maximum value. Doing the right things is just as important as doing things right.

“Organisations are no longer willing to make speculative investments in information systems without a clear understanding of the costs and measurement of the benefits. Today, a new air of realism demands that cost efficiencies must be derived from existing systems, that costs must be firmly controlled, and that new projects must add value”, says Blowers.

“When considering the opportunity for IT cost savings, it is important to appreciate there is no ‘one-size-fits-all’ solution. Organizations will need to be selective and initially opt for those initiatives that will achieve the best returns in the shortest time period. However, IT cost reduction should be gained through a systematic and holistic approach, as well as being integral to existing IT processes and management, in order to ensure that the best value is being achieved from the organization's IT investments.”

Providing an IT capability is one thing: operating, maintaining, and managing it cost-effectively through its whole lifecycle is another

In order to provide the required levels of transparency IT management must put in place the foundations of well-managed IT assets and capabilities, comprising infrastructure, processes, and skills, along with the use of automation, which form very important enablers for successful cost-control processes. Ad hoc manual methods based on spreadsheets are no longer an acceptable or a practicable solution; especially as data quality for accurate and comprehensive IT reporting is now crucial. In order to reach the required level of consistency the use of an architectural approach and the deployment of an integrated toolset and common repository must be an area of focus, as is the setting up of feedback loops and dashboards.

Once a service is in the live environment the facility to track its performance and behavior is an important capability. The highest costs are incurred once a service is deployed in the live environment. Reducing problems in this phase can bring considerable benefits to the overall life-cycle costs. From the very beginnings of IT there have been silos of one kind or another in the technology infrastructure, and also in the functions and people aspects of the organization. Within IT, better harmonization of the application development and deployment areas can help the IT function become much more agile and cost-effective. The IT department must grasp the thorny issue of chargeback: whilst the expectation is that in many instances no cash actually exchanges hands, how can the user perceive value when IT services are provided for ‘free’?





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