You can’t pick up an industry publication these days without reading that everyone from the CFO to the software salesperson wants to ensure that every IT investment is adequately analyzed.
CIOs need to heed this increasing scrutiny. Rather than reacting to others’ revitalized interest in IT investment analysis with a knee-jerk response, CIOs need to begin driving investment discussions toward two objectives: discussions that encompass an enterprise view in addition to just discrete project views, and discussions to replace the term “IT investment” with “business investment.”
These two objectives, as outlined in this article, provide the foundation for developing productive and ongoing investment discussions.
An investment model
CIOs can achieve the discussion objectives by utilizing a simple model to frame both the financial information and the discussion. The model, illustrated below in Figure A, organizes enterprise financial data into three categories:
- Production: resource required for the infrastructure supporting an enterprise’s portfolio of applications
- Maintenance: resource required for maintaining the portfolio of applications
- New development: resource required for additions to the portfolio of applications
|A simple investment model can frame financial information and drive discussion.|
Viewing a business’s IT investment in these categories over time enables business and IT leaders to discuss and understand the dynamics between each category. In the example above, the organization significantly grew investment in new development from Year 1 to 2 and maintained that level in Year 3. The Year 2 investment affected both production and maintenance costs in Year 3.
If the leaders had initially viewed the planned investment in the context of this model, they would have anticipated these effects. That knowledge surfaces because the model forces an examination of three important questions:
- How much will we invest and over what time period?
- How will the investment impact maintenance costs (short and long term)?
- How will the investment impact production costs (short and long term)?
Answering these questions enables tech and business leaders to candidly set expectations and monitor them as they execute the investment plan.
Project vs. enterprise view
Business leaders typically don’t examine the enterprise investment view in lieu of discrete project views. Rather, they examine it in addition to discrete project views. Applying the model framework to a discrete application or project is critical because it forces business leaders to answer the three questions for a specific application.
Adding the enterprise view forces a compilation of the discrete project views. This compilation, in turn, forces an analysis of the linkage across the entire application portfolio as you answer the three questions from an enterprise perspective.
IT vs. business investment
A common flaw in any IT investment discussion is including just the IT component of an investment. It’s critical to remember that an application portfolio exists to support the business processes in the same way that business people and facilities exist to support those processes.
When businesses look to operate more effectively and efficiently, they must first determine how to structure their processes in order to improve. They then can explore opportunities to leverage technology to execute the new process structure.
Consequently, any review and discussion of an IT investment should include the business component driving the investment, thus making it a business investment discussion. This inclusion presents a complete picture as it forces a review of the three questions for the entire business process, and initiates the value discussion regarding an investment.
In the context of the model, this inclusion is simply an additive process. As illustrated in Figure B, a business investment component should combine with each IT investment component to generate an investment total.
|Combining investment components will produce an investment total.|
It may not be easy, but it is worthwhile
Taking the helm and driving the investment discussions may prove more difficult for CIOs in the current environment, but tech leaders will find the process a great deal easier if they use a simple framework to ensure productive ongoing discussions. That framework must establish both a project/application and enterprise view of investment plans while including the business component of any investment.
Such a framework will ensure that IT and business leaders are addressing the important questions and understand the dynamics of investments in their IT portfolio—an all-important aspect for both CIOs and corporate leaders.