For some, beads of perspiration may be forming at the very question. For a CIO, though the actual budget presentation may be short, it is a critical time to make their case for spending the following year, and more importantly, to introduce new initiatives that will strategically advance the company’s business objectives.
One of the barriers to this accomplishment is in the language we speak in IT: technical jargon and complex tables of IT spend not directly linked to the business value or actual line of business consumption – hardly a language that would resonate with your average executive board. Susan Cramm suggests in a CIO magazine article that “CIOs [should] present utility costs as if they were an outsourcer, on a per-department basis, whether it’s for email usage, help desk calls, or the network.”
The main takeaway there is that the conversation needs to happen in terms of customer-facing services, not processes or utilities. These services need to be transparent and understandable, in “business-speak,” to the lines of business, and accompanied by an accurate service-based unit price (rate).
My keyword in that last statement is accurate. If the CIO and IT organization as a whole is going to become a trusted, strategic partner within the business, then it needs to present the full cost of doing business with IT: by product, by service line, by line of business, by customer.
N. Dean Meyer published an article on the subject and laid out 6 Levels (0-5) for Full Cost Maturity, starting with Traditional Budgeting, then Fair Allocations, then Demand Management, then Accuracy, and finally “Rates – Costs are portrayed in total for products and services, and unit prices (rates) are extracted from the same data.”
Getting to this level of maturity from scratch would be daunting for almost anyone, and the horror stories of 30-40 connecting Excel Workbooks have definitely been told around the many IT Financial Management conferences I’ve frequented. Luckily, there are tools out here that automate the process (and, of course, I am biased toward those offered by my company, Lontra – particularly since it is offered with a 60-day service cost modeling and delivery guarantee).
Demand Management is also key – a topic I could write an entire blog about and probably will. Knowing the full cost of providing any given service enables IT to have conversations with LOB owners that allow you to predict and record trends in demand, and create rolling demand-driven forecasts that go 5 to 6 quarters out. It also allows your IT Financial Managers to compare your cost of delivery against benchmarks in the industry and make informed spending decisions.
If a CIO is armed with the ability to discuss services in business-speak, including accurate service-based costing, and with a more accurate picture of future demand, the answer to “Are you ready for budgeting time?” should be “Bring it on.”