Newsletter – March 2011
IT Financial Management
Joe Barkley, Director, CFO Consulting Partners LLC
Information Technology (IT) is the second largest cost – after Human Resource – to most firms. It is often misunderstood and can be ineffectively managed. IT is a business within the business, and it has significant bottom and top line impact.
Chief Financial Officers (CFOs) may regard IT as a “black box:” difficult to fully comprehend exactly which technologies are worth spending money on and how to properly utilize them. Firms and management can be enticed by the latest technology because it looks slick without understanding the full capabilities and controls involved.
Ask a CFO who is responsible for the management of the IT costs and the answer is usually the Chief Information Officer (CIO), or some equivalent position. While it is imperative that the CIO have a say in IT budgeting, the CFO has ultimate control and must be involved in IT cost management as well.
There is need for adequate, effective, and efficient control process for all aspects of IT. When fully implemented, each IT process needs to include budgeting, financial reporting and accounting, capital budgeting, project management, program management, acquisition approval,and control of IT procurement of equipment, services and personnel. This is in addition to the management of the IT specific facilities such as data centers, operations centers, and ancillary facilities. This financial control needs effective benchmarking and measurement to both internal and external standards.
The development of a successful, well-managed IT Financial Management program is a multi- phase process. Along the development path, there must be a controlled and logical progression of steps and decisions. Start by identifying all of the IT costs, resources, and effective reporting on those activities. This is not a trivial task. Progress reports on what is learned should be provided to Senior Management in a consistent and routine manner because numbers should and will change as more information is discovered.
Move on to budgeting, both operational and capital, including approval and authorization processes. Get control of the maintenance activities and costs, and the personnel approval processes for both internal and external resources. Consider building a specific set of job classifications for IT units and functions.
Continue building the IT control and management processes, measurements, and reporting phase by phase until there is a comprehensive program. The detailed program should be understood and reviewed by the firm’s senior management, who should have adequate authority and resources in the IT function to sustain the operation.
Remember the adage from Lou Gerstner, “Sooner is better than perfect.” Resist the temptation to jump to a sophisticated strategic prioritization process until the organization is mature enough to do it right.
CFO Consulting Partners specializes in developing and fixing these functions and processes. We can parachute in and have “wingtips on the ground” within days and begin to understand, listen, and build. Contact us to see how we can help improve the financial management of your firm’s Information Technology.