Under pressure to defend IT costs to the CFO? Struggling to clearly justify the costs of products, services, and investments? When it comes to this part of IT business management, you’re not alone.
Identifying the true cost of IT services and the true impact of IT decisions is what we call cost clarity. And that goal may seem nearly impossible right now. As a CIO, you may often feel like you’re fighting a losing battle without the proper weapons. The larger and more complex the organization, along with a multitude of decision makers and business stakeholders, the more compounded this challenge can seem.
It’s not uncommon to rely on custom-built spreadsheets or expensive ITFM platforms to gather and track data. But the problem is, data isn’t cost clarity. What you need to do is interpret the data to understand what is driving and influencing costs within the IT budget.
Getting there may be easier than you realize.
You can implement 3 smart IT finance strategy tenets right now to help you achieve cost clarity in your overall IT business management approach.
Step 1: Leverage A Common Cost Model
The cost model is the chain of data that drives costs from the General Ledger to the Bill of IT. It is the lynchpin to your success. The cost model serves as the foundational engine that will help you analyze your data across the organization.
Here’s the frustration: CIOs often fall into something we call “cost model paralysis.” With so many options and schools of thought on the subject, they often find themselves opting for none of the above in the pursuit of finding the perfect one. That is a disastrous decision.
Your cost model doesn’t have to be perfect. Use a common model that works for your organizational goals and leverages the data you have to make the best possible allocations. You can improve and refine it as you go—the important thing is getting started somewhere.
Step 2: Align Expenses into Simple Groups
Now that you’re getting the data you need to generate bills for IT as part of your IT business management strategy, it’s important to make sure those bills make sense to your business-unit consumers. You need to align and explain IT expenses as clearly and simply as possible.
Start by sorting IT expenses into more specific and obvious groups (i.e., “PCs” and “email” rather than “database” and “cloud”). This is how business units think of and interact with IT. Grouping IT expenses this way will make the associated costs more clear and relatable to them.
Then, in your IT bills, describe those costs in simple terms the business units understand. Talk about the services provided and the corresponding value delivered. And use their own terminology when you do. By doing so, you’ll encourage leaders to apply the same business-case analysis to IT decisions that they do to every other expense.
And you’ll drive more buy-in as you go.
Step 3: Use Reports to Tell Clear Stories
At this stage, it’s important to note: you’re not presenting data, you’re presenting a story.
So, once you’ve collected and categorized your data, you need to package it in a way that’s appealing and instructive to your business-leader recipients. That means it must tell a clear story rather than simply report numbers.
Think about what, why, and how you’re reporting. Think about what the report needs to include and what it needs to look like in order to be relatable and relevant to the reader. Then, present it in a way that’s:
- Appealing – Use graphics and visualizations to increase informational impact
- Analytical – Offer data insight, context, and interpretation
- Actionable – Provide key takeaways and recommendations
Clear reporting drives optimal decisions. If on target, your reporting will help business unit decision makers better understand the cost (and potentially the benefits) of their IT spend. And, it might even underscore the value of the role you and IT Financial Management play in the success of the entire organization.
Cost Clarity is Within Reach
Identifying the true cost and clear value isn’t an impossibility. It’s a process critical to your IT business management strategy. And these 3 steps are the right steps forward to rapidly mature your ITFM capability. Follow them and you’ll deliver more than cost clarity—you’ll tell an influential story that drives better business decisions.