Posts Tagged ‘datacentertrust’

3 Steps to making the Outsourcing choice

by Matthew Carmen on June 21, 2010

Outsourcing.  If you undertake this beast solely for financial savings, you will be disappointed. After a decade and a half of IT finance experience in the consulting, healthcare and entertainment industries, I tend to liken outsourcing to medicine:  The skill or portion of your business that you are looking to outsource is the headache, and the act of outsourcing is the aspirin.  In many cases, one has to be willing to spend extra money to get rid of the headache.  Spending extra money is not always the case, but when it is, it still could be the right decision in the long term.

It is now rare to find a company, of any size, that hasn’t outsourced some portion of their IT functions.  This could be as small as an application or as large as the company’s entire IT department.  So now you’re considering outsourcing within your own organization…but where to start?

Step 1: Once the CxO has signed off…

Once the CIO and/or CFO (hopefully with inputs from many other departments) has decided to look at the outsourcing option, where does the team – consisting of representation from finance, procurement, legal, operations, the user community and executive leadership – start?  As an example, let’s say a company is looking at outsourcing their mainframe environment:

The first thing that needs to be done is to figure out what assets the company has dedicated to its mainframe environment.  These assets might include:  applications (software), storage, facilities, labor and the actual mainframe equipment.  According to my colleague Brian Superczynski’s article, “More bang for your IT buck: Three keys to success”, published on March 15, 2010, well run organizations have accurate asset management, contract management, vendor management, activity based costing and other systems to make this an easy endeavor (my article  Lifecycle Management: Knowing what your company owns, how it’s being used, and where it lives, published April 12, 2010, delves into these areas more deeply), if not, there are many small and large consulting companies that can come in and do this assessment.  Most small and midsized companies do not have these capabilities in house.  Even large companies may want to bring in an outside expert to do this work, as to keep politics out of the decision making process, as much as possible.  Once this task is complete, the finance person assigned to this project will build a cost model, showing what the company spends on its mainframe environment.

Secondly, obtaining data on what other companies (similar to your size and/or industry) are spending on their applications, labor, storage, etc., is very valuable.  As with asset analysis, there are many companies out there that can provide this information –  Gartner Group and Forrester Research are two of the leaders.  Make sure to buy only the services that you need.  This information can get pricy, but it is definitely needed to make a sound business decision that will affect the company for many years to come.  This information, in conjunction with the corporate costs, will show where the negotiations with the outsource provider will take priority.  Labor is always high on this priority list, due to the fact that a provider should be able to do the outsourced activity more efficiently.

Step 2: Selecting and engaging outsourced solutions

Upon completion of Step one, the company is now ready to develop a Request For Information (RFI).  This task is usually performed by the procurement team, with help from operations, finance and legal.  This document is used to gauge the interest of prospective outsource providers.  By asking the right questions regarding the providers’ mainframe capabilities, the company looking to outsource can figure out who are the viable candidates, based predominantly on operational viability and sustainability.

Once The RFI has been responded to, hopefully by many outsourcing providers, the company will make some determinations on who they want to bid on the project.  What is becoming more and more popular is multiple outsource providers getting pieces of the outsource initiative – known as multi-sourcing – can come into play as well at this juncture.  Once the company knows who and how they want to bid on their outsourcing project, a Request For Pricing is developed (RFP).  This document, with many parts of the RFI document included, is meant for the vendor community to bid on the wants and needs of the company.  These wants and needs can get very complicated, the company looking to outsource may want upgrades to many of their applications and systems, that they cannot do themselves, or they might want equipment upgrades, etc.  These needs will add costs to the total vendor bid.

The vendors that choose to participate in this possible outsourcing initiative will respond to the corporate RFI/RFP – a timeframe you specify but usually within 30 to 60 days. Now is when the real nuts and bolts work starts.  Everything is a negotiation.  The company will need to decide what is a priority and what becomes secondary.  Service Level Agreements (SLA’s) must be agreed to, cost structures for outside work, i.e. new functionality, future usage, etc, need to be agreed to, as well as hundreds of seemingly minor points that if not discussed can come back to bite the company.  Once all the costs, service levels, etc. are agreed to, a decision can be reached.

Step 3:  Reaching the final decision

In order to reach a final decision, a business case must be built.  There is no set form in doing this, each company is different.  This business case needs to contain the information necessary to sell this undertaking to the decision makers in the corporation.  Financial models, growth estimates, industry information, etc all help make the case.  What the decision will come down to is where the ‘most bang for the buck’ can be realized.  Is the company getting the same services for less money?  Are more services provided for more money?  Are future costs controlled?  The answers to these questions in the business case will lead to a conclusion and facilitate the final decision.

Once the business case is presented, a decision is made.  Outsourcing may or may not make sense based upon all of the evidence provided.  If outsourcing does not make sense at a particular time, this does not necessarily mean it should not be looked at again in the near future.  The business environment or technical needs of the company may have changed, services pricing may have decreased, etc.  If outsourcing is the chosen direction, the company needs to put processes and people in place to manage the engagement in a positive way, in most cases this can be done through a reallocation of the labor that has been outsourced.  Issues will come up and having process in place will help mitigate them in a way that is beneficial to all involved.

I hope this information is helpful in your organization. Remember that this is a broad outline of the undertaking of an outsourcing relationship.  Each company will have different needs, levels of service, etc.  Make sure you have or contract the best expertise to provide all the information needed for your company to make the best decision for its business interests.  In most cases, outsourcing should only be considered for non-core activities, such as Information Technology, Customer Service, vendor management, etc.  Outsourcing can be a huge benefit to an organization on many levels, but should never be taken lightly; always make sure that due diligence has been conducted, sound planning exists, and ultimately that internal monitoring and coverage exists in order to address any issues that may arise.  It’s your business – fuel it properly to ensure success

NBA, NHL and your company’s Key Performance Indicators

by Brian Superczynski on June 7, 2010

For sports fans this is an exciting time of the year with both the NBA and NHL finals taking place simultaneously.

There’s added excitement this year with the renewal of the classic Lakers and Celtics rivalry and the Chicago Blackhawks looking for their first Stanley Cup championship since 1961.

As in sports, companies and internal departments need to identify key performance metrics which translate to success in their industry.

Just as analysts review a company’s balance sheet and operational metrics, many fans and sports analysts refer to team and player statistics in order to support their predictions of who will win their respective league championship.   In the NBA finals, they’ll be citing each team’s shooting percentage from the free throw line and the field as a key performance indicator. In hockey, there are the obvious statistics of number of power play goals and goals against average.  But this year, analyst have cited the unusual statistic of Chicago’s offense scoring 11 goals with 10 different players as a key indicator of its success through game 3 of the championship series.   The implication is identifying the Stanley Cup series specific statistics over and above the commonly followed season statistics in order for either team to make adjustments to win the Cup.

Many organizations today do a terrific job at measuring their own teams’ statistics – take the airline industry for example: they measure the use of number of seat miles for which the company earned revenues.  What’s more difficult is identifying meaningful performance indicators at the departmental or individual level within an organization?  Effective identification and translation of organizational specifics makes an executive’s job easier when identifying and adjusting to trends, defending team budgets, identifying savings opportunities, and even negotiating contracts.  This is especially true within an IT organization.

One of my favorite Information technology metrics which typically does not appear on the company’s balance sheet or in the annual report but translates into effective IT performance are the metrics related to desktop or PC support. I like these metrics because Joe the worker at Company X probably does not care anything about IT metrics.  But Joe and his peers know who to call for problems with their PC’s.  You know – the “IT guy” who the department takes out to an appreciation lunch once or twice a year.  Keep Joe and his peers happy and that will translate to good scores for IT support.  Remotely identifying and correcting Joe’s PC problems at the help desk is almost always the most efficient and cost effective way to provide desktop support.  Therefore statistics such as average time to answer and mean time to repair (MTTR) are often cited as an accurate performance measurement of the desktop support unit.  These statistics have further downstream implications for identifying the desktop to technician ratios or the number of technicians required to be in the field when problems cannot be solved remotely or over the phone with an agent.  Organizations which typically resolve most incidents remotely with an agent do not need as many field technicians and therefore have high desktop to field technician ratio’s and are considered the most cost efficient.

But just as the Lakers, Celtics, Blackhawks and Flyers will be identifying opportunities and adjustments based upon shot percentages and other common game time metrics, an organization must know how to translate their metrics into performance-improving activities.  Although the Flyers have allowed goals by 10 different players after three games, they have been able to hold the Blackhawks top scorers this season to just one goal in the finals.  So in some respect, part of the Flyers game plan may be working in shutting down the opposing team’s top scorers and the high number of individual goals per Blackhawk player is a positive metric.

Using the same analogy, there may be reasons why an IT organization has metrics which are out of line with industry standards and those reasons need to be well understood to justify costs.  In the desktop support example cited above, a company may require higher PC to technician ratios due to Joe’s high availability requirements.  For example, our friend Joe is an order taker on a trading floor and does not have the time to call the help desk and work with an agent to solve problems with his PC while the markets are open.  The same dynamic is also seen in the healthcare industry within clinical environments, where nurses and doctors are focused on treating patients and do not have the bandwidth to diagnose problems accessing automated medical records from PC’s.  In these environments, it would obviously be acceptable to experience higher desktop to field support ratio’s to insure key functions within the company have highly available systems and support.  Understanding these dynamics is critical when performing organizational benchmarking activities and considering out source opportunities.  With regard to outsourcing, you’ll want to understand how a supplier is proposing to achieve savings.  Are they proposing to increase the number of PC’s a technician supports from 250 to 500 devices? If their model is predicated by resolving more calls remotely at the help desk you’ll want to closely examine the impact to your organization.  Having a deep understanding of your metrics will allow you to better negotiate support costs within your company and negotiate actionable savings strategies offered by department heads and suppliers.

The challenge is to drive meaningful measurements to all levels within your organization.  Ask your management chain to identify metrics which translate to their group’s success.  Then ask them why the metrics are meaningful and actionable and what needs to be done to improve the scores.  I would also suggest that if the measurements are not actionable then they are probably not the right performance indicators to be tracking.

For those deep thinkers out there, I hope these insights will not cause you to become distracted with thoughts of your company’s metrics while watching the NBA and NHL finals.

For those of you wondering, Blackhawks in six games with Kane becoming the scoring leader and Lakers in five by taking advantage of Celtic fouls and a higher free throw percentage.

Making the transition from spreadsheet-based Financial Planning and Analysis to a leading Enterprise Performance Management Solution (e.g., Hyperion, Cognos, etc..) requires commitment, executive sponsorship, and significant adjustment by those involved.  Before moving forward with haste, certain items should be considered to ensure a successful and sustainable implementation:

  1. Assess the Current Environment: Before a company can even consider beginning to scope out the analytical and reporting needs of a given organization, it is important to take a careful look at the current environment. Many organizations make the mistake of implementing analytical tools that only produce what is currently being used. The only difference may be a more complex user front end.  Doing this will not create any value for the organization and will only lead to frustration and a low adoption rate.
  2. Get to Know Users and Understand User Needs: It is important to meet with the key people in the organization that will be using or relying on the new tool to make business decisions.  Approach these conversations in a way that opens the door so that they are intricate in the design and development.  Keep in mind, fulfilling the needs of the Finance is important, however, providing a tool that has the power to directly impact the business and profitability is the goal.  It is important to have a strong executive sponsor of the project which will assist with driving the project and promoting it through-out the executive team of the company. However, receiving input from the data experts / users of the data will lay the foundation for a useful tool which will have an impact on the day to day operation and management of the company.
  3. Identify Key Performance Indicators (KPI’s): During the discussion with management and the users in the organization, it is not only important to understand the business drivers, but also being able to measure business performance by applying KPI’s.  KPI’s need to be measurable, but one simple aspect to keep in mind, is they should be useful. Don’t overwhelm your user base with complex KPI’s that do not add value.  During your information gathering sessions you should be able to get a feel of what is needed, and you may find in most cases there is a common theme.  Some examples of KPI’s include:
    • Profit and Loss
    • Inventory Turn
    • DSO (Days Sales Outstanding)
    • Customer Loyalty/Attrition
    • Market Share Indicators
    • Other relevant measurements
  4. Good Project Management Skills Are Key: Once the information gathering sessions are complete and a signed-off proof-of-concept is in place, it is time to create a Statement of Work (SOW). The SOW is a detailed road map of the project. While drafting the SOW, it is important to keep in mind that you are providing a solution to an existing problem. Therefore it is important not to over complicate as this will only create resistance and lack of acceptance. When drafting the Statement of Work, the following should be defined:
    • Project Scope
    • Risks identified
    • Timelines defined
    • Any additional terms of the project

It is a good practice when managing a project of this scope to schedule weekly update meetings and to track the progress of the project to ensure that key deliverables are being met. This will keep the project in line with goals and timelines detailed in the SOW. Lack of diligence can most certainly result in an overage in project budget and delays in implementation. Some others points to keep in mind include:

  • Implement in phases and conduct User Acceptance Testing along the way.
  • Ensure proper training is made available not only users, but the administrators of the new tool.
  • Do not over complicate. In some cases, less is more. Provide a sustainable, usable system that can provide standardized reporting, yet have the flexibility to provide ad-hoc analysis as needed by users.

There are many styles to managing a project in the IT or Finance world. Information Technology people have their own style, understanding, and expertise. Finance and operational people have the ability to bring a different angle that is also very important to a successful implementation. Using the items detailed above as a guideline and engaging the necessary key people upfront, will make a big difference in the success of the project.

From the time the idea of a company was developed, those who control the purse strings (finance) and those who manage the income (sales, operations, and marketing) are often adversaries.

A frequent igniter of these tensions is a situation where an operations or business group wants to quickly move forward with a project (XX optimization, for example) which requires a capital investment.

Before approving funding, however, the finance organization must complete its due diligence by quantifying the benefits outlined in the business case. This timing gap often creates a bottleneck and uncertainty about the projects’ implementation and/or timing.

These bottlenecks can be avoided by all stakeholders working together to build a strong, interactive relationship around the project.   Keys to building this relationship are education, communication, and ultimately, including the finance team in your project.  The capacity to master the first two skills will lead to your finance organization becoming a trusted advisor and consistently being invited to serve as an active participant in your strategic initiatives.

Education

It’s a two way street.  With over a dozen years of providing strategic financial support, I have consistently found that education is the first step in building bridges to a better working relationship.  It is as much a necessity for the financial person to understand what the operations groups do, and vice versa.  While working at a for-profit healthcare organization, I held a weekly course for 10 weeks in order to educate the IT infrastructure group management team on the objectives of the finance group and how a working knowledge of finance objectives can add value to the IT organization and help them – and the company overall – to become more successful.  Once the course was completed, the IT management team understood why and how their involvement in budgeting and financial planning is important to the company’s operations, why their participation in the ‘month-end close’ process is crucial to meeting the goals of the company, and also why the building of business cases for all projects is essential for long-term financial planning and overall success.

I have also found that, from the financial team side, learning what the operations groups do, and how they do it, is vital to the success of a financial analyst.  By fostering an active relationship with my ‘customer’ – the operations team – and understanding how they manage IT facilities, call centers, or manage hardware environments, I was consistently able to develop a better relationship with these supported groups – and we always celebrated our successes together.

Communication

This begins with the education phase and continues to build a foundation of trust.  Once the financial representation and the operations groups understand what the other does, it becomes easier to support the others’ efforts.  The key to effective financial communications is to remain consistent with operational or business partner requirements, and to be cognizant of the execution of new requirements and their execution. Make no mistake – the execution of these objectives can be difficult at times; this means the month-end close process must run the same way each month, and the systems of the budget process are changed as little as possible each year.  The information required to develop a business case is the same, regardless of the project.  In the event any strategic change does occurs,  any corresponding  changes in financial requirements need to be carefully considered and communicated so as to not to compound further disruption to the organization. Once consistency is achieved, the analyst and the group he or she supports can get to real work, the work of optimizing the business and reaching the ultimate goals of the company:  profitability, social goals, etc. This is the trusted advisor stage.

The trusted advisor

This is the ultimate goal of the financial representative, and where the fun begins.  As an analyst, I remember my colleagues consistently stating that the most boring part of their job was the “regular” work.  My experience is, once you have a system in place for achieving positive results in a routine activity such as the month-end close, that task often becomes mundane. For a corporate finance person, the interesting work is that which includes participation leading to realizing corporate goals.  Ways in which the financial analyst can participate in this process include performing lease vs. buy analyses for new equipment and software purchases, finding savings within a project, conduct audits to make sure the company is ‘getting what it pays for’ from each of the many vendors and service providers, and also establishing metrics and key performance indictors (KPIs) to put dollar figures on operational measurements and use this information to make key business decisions, etc.  Serving as a trusted advisor to the operations management team can be exceptionally rewarding; it allows an analyst to be creative and to develop solutions that help to both ensure a successful project and contribute to the company reaching its goals.

Achieving the role of trusted advisor and building that relationship between finance and the operations groups is important to the success of the entire organization.  The more adversarial the relationship, the more difficult it becomes to complete the work – both the monotonous (yet necessary) work and the creative solution work.  Once these barriers are eliminated – from either the operational or financial end (or both) – all jobs become easier, more efficient, and much more rewarding to each employee.  Motivated employees will not get excited about doing the same job every day. To them, variety and professional growth are the spices of life, and job functions in all areas of the company become more efficient when the relations between all groups within the company are high

iPad: Faster than a speeding gurney

by Marc Watley on April 29, 2010

While at dinner in San Francisco recently, I’d asked a good friend – a nurse who works in the Sutter Health system – of his thoughts on the iPad. “Oh yeah…I want one..now!” he responded excitedly. (We were dining at Paxti’s if you must know; good Chicago-style pizza but nowhere near as yummo as the pies at Zachary’s across the Bay in Oakland) “I think they could be the answer to replacing our patient charts (you know, those old-school metal-clad clipboards dangling from the foot of patients’ adjustable beds). The iPad would be a fantastic tool for the healthcare industry.”

My friend’s enthusiasm got me to thinking: why wouldn’t healthcare COOs and/or CTOs (often doctors themselves) embrace the iPad for their Electronic Medical Record (EMR) and other patient care needs?  The productivity gains alone would seem to more than pay for the device, connectivity, and implementation costs. Then there’s the excitement factor…when was the last time you’ve seen end users this excited to use any device for work? Granted, the iPad may not be as indestructible as, say, a $1700 ruggedized WinTelMo device currently in use by some healthcare providers, but at less than a third the price, a larger interface and I mean, come on, a much better UI, seems to be a no-brainer, right? True, the iPad is a spanking-new device that has been on the market all of three weeks, and is as of yet unproven in the enterprise. However, this does appear to be changing…and fast.  Consider a couple of data points:

First, Citrix is already on board with the iPad, having recently released Receiver for iPad which provides secure access to corporate applications and desktops – from Windows environments to Oracle databases, to, well, 3D medical imaging applications.

Also, healthcare organizations are already beginning to show up among the early business adopters of the iPad. According to iMedicalApps, Kaweah Delta Health Care District near Fresno, California, has reportedly ordered 100 iPads for use with viewing radiology images, Electrocardiogram (ECG) and other patient test results. They feel the iPad will be especially useful for their mobile healthcare workers, such as hospice and home health nurses.  The iPad and Kaweah Delta Health Care presents an interesting test case for the device…could it also serve as a sort of bellwether for iPad adoption in healthcare? Possibly.

The subject of the iPad and its potential – for healthcare and many other industries – continues to flood the Internet, and will surely be a hot topic at upcoming conferences including, I suspect, next month’s CIO Healthcare Summit.

Now then, picture if you will…let’s call him Dr. Jones.  Our good doctor is commuting home via train after a long shift at a large metropolitan hospital.

Phone rings:

“Doctor! Mr. Smith in 207 is irate and uncontrollable…help!”

Dr. Jones: “Is that right? One moment.”

Enter iPad: Secure login > Recovery Wing NE > Patients > Bleau, Joseph R. – Rm.   207/A > [TAP] > Patient I.V.> Add > Sedatives > ”Sleepia TZ” > [TAP] > Administer > CONFIRM > [TAP].

Patient: Zzzzzz.

Hospital staffer: “Bless you Doctor!”

A fictitious situation? Sure. I’m just sayin’…

Business Intelligence or lack thereof?

by Brian Beedle on March 29, 2010

In these difficult economic times, companies are creating processes that are not consistent with the ways in which they have traditionally managed their business.  Whether you are the CFO or an entry-level analyst, everyone must actively learn how to re-engineer and strategically manage in this new economic environment.

The expectation of companies’ Board of Directors is simply to increase top and bottom-line revenue (and by extension, profitability), with little concern for everything in the middle. Before you can even consider instituting measures to contribute to the Board’s expectations by implementing cost savings initiatives, it is necessary to develop a well thought out and orchestrated operating plan.  There are many approaches to this. Some companies prefer the “top-down” method, where management dictates the spending of the operating units and it is then up to the operators to manage within their allocated budgets. On the other extreme, management may prefer to push down the responsibility of planning to the operators and ask for a “bottoms-up” approach.  This approach requires the operational managers to develop assumptions and create a detailed operating plan with very little finance intervention.  Typically, the results of the “bottoms-up” approach may not be what you expect, but merely a wish list that even Santa Claus cannot deliver!  Sure, these may very well be extreme cases – most likely the process your organization uses falls somewhere in the middle. In any case, it is imperative that the process be organized and well executed.

PERFORMANCE MANAGEMENT:

Q: “Why would a company be willing to invest the capital in a tool that provides little or no tangible Return on Investment (ROI)?”

A: This question is certainly justified, and the answer is surprisingly very simple: This perception is incorrect.  There is statistical proof which supports a direct correlation between implementing performance management tools and its downstream, positive impact to shareholder value.  Among this positive impact is increased accuracy of strategic capability.

Taking the leap to performance management is a major commitment for any organization and should not be made hastily or taken lightly.  Performance management initiatives do require careful planning, decisive action, and ongoing support from within the organization.  When it comes to performance management implementations, there is a fine line between success and failure.  A well planned-out and executed implementation will yield great success and gain acceptance.  However, a sub-par, marginal implementation with little or no added user benefit, will lead to frustration for the legacy users, leading to further resistance to the new technology and potentially the perception of a failed implementation.  The fine line between success and failure is extremely important to keep in mind.  Moreover, there are several factors that also need to be considered before beginning the journey to performance management, so that the end product delivers results not only in a positive ROI, but also in true business “intelligence”, and not a lack thereof.

A few of these factors are:

  • Before the decision is made to move forward, it is important that a thorough assessment is conducted of the current business planning and intelligence environment. One of the most common mistakes that many stakeholders encounter when implementing this type of a solution is poor design.  Take this opportunity to think outside of the box. Challenge the operational business managers who are responsible for preparing the physical operating plans and forecasts to research what is needed to successfully manage their business. Take a look at your current reporting – does it provide value?  You may be surprised to find out that the need of the finance team may differ greatly from the needs of the overall operation.
  • When preparing a proof of concept and statement of work, a best practice would be to set milestones and plan in phases. Establish reasonable expectations.  It is okay to under promise and over deliver.  Keep in mind, less may be more. Over complication of models and tools may only cause frustration and not be helpful in gaining user acceptance.
  • A successful implementation will require commitment by leadership within the organization. It is true that many of the leading enterprise planning and business intelligence solutions companies pride themselves in offering applications that are typically implemented and maintained by finance departments and require little or no IT support. This in many cases may be true, depending on the skill set of your administration team. However, for small to mid-size companies, these finance department resources may not be available as in larger organizations. Engaging network/server and database administrator resources up front will result in a far easier and more successful configuration of the environment. Before purchasing any hardware, it is advisable to discuss the requirements with your server team/consultants to ensure that your solution is being configured optimally, yet in the most economical fashion.
  • Provide training to users with relevant materials and be sure to seek feedback.  (Just because a solution is implemented, does not mean there is not room for continued development and improvement.)

Some of the points discussed in this article may sound quite elementary in concept,   however it is important to step back and not lose focus of these basic principles –  ultimately gaining a deep understanding of what it takes to successfully implement performance management initiatives.

More bang for your IT buck: Three keys to success

by Brian Superczynski on March 15, 2010

Many companies do not have the luxury of providing dedicated financial support to their Information Technology (IT) organizations, which often results in a struggle to understand IT cost drivers and savings opportunities.  This struggle has become more evident as companies increasingly rely upon effective IT to drive operational efficiencies while simultaneously expecting IT units to reduce operating costs. This paradigm often results in the CIO seeking a liaison between IT and corporate finance in order to help provide transparency of technology costs as well as to identify the value proposition of all IT services. Identifying meaningful savings and efficiencies in your IT environment begins with a partnership between the technology and financial support units.  Preparing for these conversations requires an understanding of how to build a successful partnership between IT and corporate finance – the foundation for which begins with three related key practices:

Applying traditional financial management practices with the IT disciplines of vendor and asset management.

FINANCIAL MANAGEMENT:

The key to world-class IT financial management is coupling financial processes to your technology infrastructure and the organization’s strategic technology roadmaps.  Effective financial management ensures the IT infrastructure is obtained at the most cost-effective price, while providing the organization with a deep understanding of its IT services costs.  In many instances however, the most cost-effective price may not necessarily mean the lowest price; depending upon availability requirements and other demands placed on technology.   Financial transparency must therefore exist in order for the business to understand the tradeoffs between price and performance.

VENDOR MANAGEMENT

This price and performance tradeoff was painfully evident following one organization’s switch to a well-known personal computer supplier, which was initially calculated to save the organization millions of dollars.  Not surprisingly, the finance organization was quick to identify how the new agreement would reduce expenses in the following year’s budget.  However, those savings quickly evaporated after the supplier experienced a 20% failure rate on over 100,000 devices, which had been in service for less than a year.  Obviously, managing your suppliers not only includes obtaining the best price but also monitoring the quality of the product or service being provided.  This is why continually monitoring your relationships and agreements with suppliers (and including your finance organization in this process) is often your first and best opportunity to identify operational inefficiencies and IT cost savings.  The end result will not only mean achieving better price performance from your technology assets, but also will improve the reputation of your IT organization to provide a quality product at an explainable and predictable cost.

ASSET MANAGEMENT:

Keeping your technology assets current also requires active management of these assets:   An effective asset strategy not only tracks the asset but takes into account the lifecycle of the product from procurement to eventual disposition.  For example, leasing is a common asset and treasury strategy found in IT because it frees up cash flow associated with large capital purchases.  I’ve witnessed on numerous occasions leases being subsequently bought out because the technology owner was not made aware of the lease and was not prepared to replace the technology at end of term.  These pitfalls can be easily avoided by linking asset strategies with technology roadmaps and the organization’s budgeting process.

These three practices may appear straightforward, but in order to be successful they require the constant collaboration between your finance and technology organizations.  The application of financial, vendor, and asset management methodologies will keep your IT organization on track to realizing operating efficiencies while also optimizing operating costs.

Stay tuned: Our next few posts, we (my fellow Datacenter Trust teammates and I) will delve deeper into each of these key three areas as well as other topics on IT finance.