Morphing IT Budgets

December 30, 2010  |   Blog,IT Strategy   |     |   1 Comment

The 80/20 rule applies to IT budgets, and CIOs are being driven to address the issue. The issue is today’s typical IT budget each year is composed of 20% new projects/initiatives and 80% K-T-L-O (keep the lights on). Managing the 80% requires more than knowledge of technology capabilities and number of staff. It requires significant knowledge of:

  • what technology driven capabilities support the lines of business (LOB),
  • the value of these capabilities to the LOB, and
  • the unit cost of the each capability defined in terms that the LOB leaders can manage its usage and determine the value it delivers.

This sounds pretty straight forward, but unfortunately many IT organizations still don’t align their budgets to a Services Catalog, as this Information Week article points out. What results is their inability to provide meaningful detail to answer business questions about the cost and/or value of how IT supports the business.

Developing a “supply-chain” view of the IT infrastructure and the activities performed by the staff, means adopting an IT Service Management (ITSM) strategy. Doing this enables the IT organization to directly align its services to specific LOB and quantify their use and the value of IT services. Some of the first steps to developing a “supply-chain” view of IT services are:

  • Develop a comprehensive IT Services Catalog,
  • Integrate TCO (total-cost-of-ownership) and ABC (activity-based-costing) managerial accounting disciplines, and
  • Adopt “Value Engineering” strategies to quantify IT services with LOB usage.

For those CIOs already doing this, when a request comes to cut the IT budget, they simply ask, “Which business service do you want to give up?”

1 Comment for this entry

  • Steve

    January 1st, 2011 on 11:17 am

    A great blog and an approach that every IT senior manager should instigate, to obtain an understanding of what each service costs versus the revenue generated by the service, which in turn assists with prioritizing the importance of each service within the service catalog. Furthermore the information will provide input into possible cost efficiency initiatives. Take a look at the following regarding producing a service catalogue
    Kind regards

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