IT value

Here are some key points from a good article in CIO Magazine about demonstrating IT value to the business.

There are three components to the concept of value from a business perspective
1. Understanding exactly what IT delivers,
2. Believing that the cost is fair
3. Evaluating the contribution of those deliverables to the bottom line.

In many cases, clients' poor perception of IT value is as basic as not understanding the full bundle of products and services that IT delivers.Sure, everybody knows that IT delivers essential services like desktop computers, network services, applications engineering and applications hosting. But that sounds simple. Many clients don't understand why IT has to cost so much just for that. The problem is, many IT departments don't clearly define the specific products and services they deliver for a given level of funding. Typically, there's a lot more in that bundle than clients know. When the specifics are defined, clients come to understand why IT needs the budget that it does.

Does IT contribute to business value? To optimize its contribution to the bottom line, IT must install processes that ensure two things: that the enterprise is spending the right amount on IT, and that the IT budget is spent on the right things.

What can IT do? There are two things.

First, IT can ensure that clients are in control of what they buy and are accountable for spending the IT budget wisely. This means implementing a client-driven portfolio-management process. Note that portfolio management is far more than rank ordering projects on an unrealistically long wish list. Clients must understand how much is in their "checkbook" (a subset of the IT budget), and what IT's products and services cost, in order to know where to draw the line. That is, they must work within the finite checkbook created by the IT budget as well as understand the deliverables that they will (and won't) get. Thus, true portfolio management is predicated on the above steps of defining IT's catalog, costing it, and presenting a budget in terms of the cost of its deliverables. Once all that is done, an effective portfolio-management process can be implemented.

Second, even if clients know the costs of their purchases and are working within the limits of their checkbook, they'll make better purchase decisions if they understand the returns on technology investments. IT can help clients estimate ROI of their proposed purchases. The cost side of the ROI equation was handled by calculating a budget by deliverables and rates. The remaining challenge is to quantify the benefits. Cost-displacement benefits (which include both cost savings and cost avoidance) are easy to measure. The real challenge is measuring the so-called "intangible" strategic benefits

In summary, the question of IT value is fully addressed when:

- IT has defined its product and service catalog in detail, associated all its costs with its products and services, and calculated rates that can be compared with the market.
- Clients understand exactly what they're getting for the money spent on IT, and indeed can control it by deciding what they will and won't buy from IT.
- IT can help clients assess the value of their IT purchases by measuring the benefits.


The full article can be found at : http://cio.com/article/161150