Ensuring IT Value for Money

A large amount of money is spent on Information Technology each year. Organisations regularly attempt to improve IT efficiency and get a better return on the money spent. According to a January 2014 article by PWC, businesses still are unsure if they are getting the most from their IT investments. CEOs and business leaders ask, “What are we getting from our IT investment?” and “are we spending the right amount to get the outcomes?” CFOs ask, “How do we know whether we are getting the value we expected?” The CIOs struggle with answering the questions, “How do I better explain to the business what it takes to run IT?” and “how do I get the business to understand how it affects the IT budget?”. The marketplace is becoming more dynamic and competitive and product life-cycles are becoming shorter. Organisations are seeking to become more agile. Making changes to the interconnected legacy systems is complex and takes too long.  When the business asks for rapid change, IT cannot deliver. Hence, IT appears to be of lower value.

IT Efficiencies have improved but challenges remain

The economy is more competitive, growth is difficult and competition is intense. IT organisations have had to regularly tighten their budgets. They have made significant strides in driving down the costs. Organisations have already implemented data centre consolidation, virtualization and offshoring to keep the budgets down. Many of these changes have been in IT’s control and required limited engagement with the business. But it is getting increasingly difficult to rely on these ‘easy-wins’. Despite these changes, the underlying legacy applications landscape has not changed a great deal. There is still a plethora of duplicate, or end of life applications, which need to be rationalised. Legacy limitations and change on top of change has resulted in complex products/ features and processes which remains to be addressed. Dealing with these changes need a collaborative effort between IT and the business over a longer timeframe. There are barriers, which make a partnership between IT and the business often difficult to achieve. These include diminished trust between IT and the business, and small windows for business planning and budgeting. However, these barriers must be overcome for IT and the business to work more effectively.

A new ‘ecosystem’ is needed

To get full value, PWC believe that organisations should look at their culture, their decision-making apparatus, and their “IT value ecosystem”. This ecosystem consists of people, processes and tools that impact an institution’s investment decisions and how it measures and acts to improve on the value of those investments.

To truly maximise the value of IT, financial institutions must invest time and money to better understand the drivers of IT cost, create planning processes that align accountability and decision-making, segment and collect IT instrumentation data at a deeper level and build systems that can enable people to make better day-to-day decisions.

Elements of the IT Value Ecosystem

IT Value ecosystem

Culture

Business culture includes IT and business relationship (expectations and outlook) around the impact of change. Culture also includes accountability, escalation and decision-making norms and  organisational reporting.

Transparency

The total cost of ownership implications of investment decisions creates transparency. Categorising the IT expenditure in ways that are meaningful to business functions can lead to meaningful actions. Often this requires gathering data at a deeper level so that choices about service and risk can be made. However:

  • TransparencyOrganisations tend to focus only on bigger projects and cost-benefit hurdles, resulting in under-performing portfolios;
  • Both the business and IT struggle with understanding the implications of demand, consumption, service levels, and risk levels on cost;
  • Many adopt the categorisations of “build” and “run,” but these are too simple to give insight or lead to actions and they are not deep enough to support business decisions around service and risk; and
  • In tight times, organisations  make “across the board” cuts too quickly instead of aligning reductions to business changes.

Decision Making

This element relates to: How decisions are made? Who is accountable for these decisions? Who participates in the decision-making? The right to make decisions needs to be aligned with accountability for delivering (bottom-line) results. Forums for decision-making need to be consistent with strategy. Effective service vs. risk trade-offs are often required. However:

  • DecisionBusiness and IT stakeholders struggle to understand who has decision rights (e.g., “everyone shares the problem, but no one owns it” and “we just keep on voting”);
  • Financial institutions have focused spending on large projects from both a decision-making and implementation oversight perspective;
  • Financial institutions inadequately analyse and manage the large spend on smaller project areas; and
  • Organisations tend to be driven by annual planning cycles, which are out of sync with multi-year time horizons for both spend and benefits realisation.

Reporting

Good quality and granular data and data gathering processes are necessary so that plans and forecasts remain effective. This data needs to be seen along with other business matrix such as customer satisfaction, financial and operational indicators. However:

  • Too much energy is spent on reports that are based on questionable data;
  • Project tracking becomes too complex but miss key elements;
  • Companies tend to drive for more detailed data than to correct and align underlying data;
  • There is a disconnect between the project investment (capital) and the ongoing ‘run’ expenses needed to sustain these projects; and
  • Service levels have been put in place at many organisations; however, many service levels stay unstated. Different pricing for premium services is not widely used.

Improvements in the Ecosystem

Over time there have been a number of improvements in the IT Value Ecosystem:

  • There is generally improved project tracking and resource use information;
  • Project status reporting for large programs has improved;
  • Many organisations are using portfolio management practices (plan, build, run) and governance methods;
  • More recently, the adoption of virtualisation and automation is providing better data for consumption based costing;
  • Service level management and reporting is becoming common; and
  • There is a shared language for communicating with the business.

Areas of future improvements

The PWC report suggests the following areas of improvement:

  • Design governance to improve understanding of costs at a more granular level;
  • Build up the portfolio management role given that current portfolio management skills are not commensurate with those of program/project management roles;
  • Improved estimation and business cases using the historical data;
  • Align service levels with business drivers;
  • Draw connections between service and risk levels and make implicit service levels explicit;
  • Build planning capabilities that reconcile short-term and long-term views of the portfolio;
  • Build reporting capabilities that are able to react to shifts in consumption; and
  • Bring together financial, performance, execution, and customer-related information.

Key Benefits of Investing in the Ecosystem

There are many benefits of investing in the IT Value Ecosystem:

  • IT investments will be managed under an agreed set of principles;
  • IT spend can be compared using categories and segments that align with business goals and other business metrics;
  • Joint construction of the annual budget with an understanding of the service and risk trade-offs facing the business; and
  • A deeper understanding of the total cost of ownership (TCO) of discretionary projects.