CAN WE RUN I.T. AS A BUSINESS?

by Michael Rosen, Senior Consultant, Cutter Consortium

One source of this sentiment is the CFO, who wants to bring fiduciary discipline to what is perceived as out-of-control spending. Ironically, funding accountability lies at the heart of much of the failure in IT cost control. Another source of "IT-as-a-business" comes from the business units, which want a more customer-oriented experience with IT. But for this to work, the business units have to treat IT like a business, meaning it has the discretion to make its own decisions about internal operations.

Now don't get me wrong. I think that IT should be run like a business. But saying so doesn't make it so. For it to work, we need to understand what is required and then change the current impediments to running IT as a business. Let's look at the cost control aspects. As a business, IT wants to optimize its end-to-end processes and bring cost efficiencies by amortizing infrastructure and capital assets across projects.

The end-to-end process is by far the biggest challenge. For IT, the end-to-end process includes: conception, development, deployment, operations, maintenance, enhancements, and retirement. The goal of IT-as-a-business is not to push the cost of one or another stage down without regard for the impact on other stages, but rather to optimize the costs across the entire process. For the business, its focus is on conception, development, and deployment. Because of accounting and funding methods, the business rarely sees the maintenance and operational costs, and if it does, there is little information that allows those costs to be related to specific projects or applications.

Here lies the crux of the challenge: the business units' desire for the fastest and cheapest development, generally with little regard to the impact of ongoing costs, is in direct conflict with the IT-as-a-business goal of optimizing the end-to-end process. For this to change, the entire lifecycle costs have to become visible to the business units. In other words, business needs to understand and bear the costs not only of conception, development, and deployment, but also maintenance, operations, enhancements, and retirement.

I'll use an automobile example to illustrate the point. When purchasing a new car, I could opt for a variety of choices. The lowest initial cost might be a Yugo, compared to the higher price of a Toyota. I understand that I don't pay much upfront for the Yugo, but over time, the maintenance costs will add up and there will be additional costs based on the lack of reliability and overall user experience. On the other hand, the Toyota will cost more initially, but will give me a better experience and reliability, with lower maintenance costs over the long run. I understand this, because as a car owner, the total cost of ownership is visible to me, allowing for an informed decision. What is not visible to me is the fact that Toyota controls its costs and quality by building several different car models on the same chassis, and that by using the same brand of tires on all models, they can reduce costs through volume. As a consumer, I would never expect to tell Toyota to create a new chassis, or what brand of tires they must use, as long as they meet my requirements.

When we compare this scenario to business and IT, we see that to make an informed decision about upfront costs, business (the consumer) needs to understand -- and pay for -- the total ownership costs. Most businesses would choose to pay 20% more for development to save 200% in maintenance, operations, and enhancements, but only if they had the right information. Furthermore, business needs to specify requirements and leave IT issues (infrastructure, platform, and product) to IT to allow them to amortize and optimize their internal operations.

As an aside, this accountability throws an interesting wrinkle into outsourcing. One of the reasons that outsourcing seems so attractive is because development costs are often optimized at the expense of maintenance, enhancements, and operations. But, when all of these costs are factored in, outsourced development is not always such a bargain.

Anyhow, to solve the issues of accountability for total ownership costs typically requires a significant change in budgeting, accounting, and billing policies and/or systems. The good news is that these systems are under the control of the CFO, frequently the main proponent of controlling IT costs. The first step in running IT as a business is to clearly articulate the need for better accountability, and then to enlist the CFO to help make it happen. Once this is in place, IT can optimize the end-to-end process and reduce overall costs.

-- Michael Rosen, Senior Consultant, Cutter Consortium