Ten Questions To Ask Your IT Department
Following on from my previous blog about a near disaster, the following are ten questions to ask your IT department about how they run their finances, and may come in useful when planning an IT strategy.
IT managers hate finances. Ask any IT person what they think about accountants and accounting and you will probably get a very rude answer. Let’s face it, technical people do not like to ask questions about money, they just want to get on with projects, solutions and technology. In many firms the CIO or CTO is promoted to a level where they have control over significant spend but the promotion is often based on their technical knowledge as much as management capability. Maybe 30 per cent of any spend in a firm can be concentrated directly and indirectly these days in IT or systems related service – so ignoring money is not an option. Not having strong governance over how money is spent on IT is a risk to the firms bottom line.
The are many questions that you should ask your IT department or yourself about the financial governance (in fact many of these apply to more than just IT too). Here are 10 key questions to ask about your firm to understand if you really have your IT budgetting under control:
1) Do you build your budgets bottom up line by line justifying each item, or do you just base it on top down targets or spend versus last year?
If you built the targets based on last year ask yourself what you are carrying forward. It is not unusual for contracts just to be rolled over or prolonged irrespective of actual demand? I know of organisations that had been renewing support agreements year on year until finally somebody looked bottom up and asked the basic question: do we really need that?
2) Do you have a full multi-year plan for the IT costs and investments linked to an agreed IT strategy aligned to business objectives?
Our blog at strategy4IT.com is full of ideas about improving your investment strategy and ways to link it to your business needs. I cannot stress enough the need to link your business objectives to where your investment money is being placed, then reviewing all your assets for change or upgrades with a prioritised plan agreed as part of the regular reviews.
3) Do you feedback investment into the multi year plan with hard running cost targets set based on prior year investment promises?
How many times have we seen projects that succeeded but failed to deliver what they promised. It is critical to have a feedback loop to understand what change achieved which results. Not every project will deliver the benefits you expect but regular over promising is a symptom of issues in the organisation that should be addressed, and not having any review is an even bigger issue.
4) Do you have a clear sign off process for the budgets and a forward plan? Is who signs off on what clear at every level?
This seems straight forward but is the process actually documented and used? If not you run the risk of someone subverting the sign off process and committing hard earned cash without the necessary diligence.
5) Are you monitoring the contractually committed forward spend or just the actual spend? Are excesses controlled and approved?
Ask yourself if you are really projecting your spend into the future, not all contracts are regular and uneven cycles can cause financial headaches with cash flow. After all, cash flow is king in most businesses.
6) Is there a regular review of all your contracts with suppliers in place? Is all spend reviewed against the contracts?
7) Are you tracking supplier performance against their contracts, SLA and performance levels? Is there a link of budget and targets with clear measurable performance indicators?
Six and Seven are at the heart of the whole vendor and procurement management challenge in organisations. It is all too easy to put your trust in your suppliers but raising issues after the event will hurt your business. It is far better to pro actively see where issues are forming before they hurt so watching and managing trends and checking all your suppliers regularly will always pay dividends however good the day to day service.
8) Are there targets for internal and external spend and staff? Are these ratios sensible and sustainable?
We have all heard of the consultants and suppliers milking money from unsuspecting companies with weak internal controls – do not yet your organisation be on that list. Make sure your core team of permanent staff are detached from their suppliers and don’t entrust the key decisions to third parties.
9) Is there a clear recovery process for IT spend from departments ? Do people control the real spend or only recoveries leading to recovery arbitrage?
In larger organisations it is common for one department to try and shift cost to another, leading to a round robin of cost shifts when the real problem is with the supply chain. Getting to the root of the cost and understanding the recovery model is important in making real savings rather than shifting the deck chairs around and pretending to save.
10) Is there a link between staff reward and service delivery and quality? If so, is that reward system being used sensibly?
Beware the link from suppliers to your staff, or from your staff to their bonuses. There are clear risks if you have lax controls on relationships as vendors will want to entertain your staff to get contracts (or worse with less subtle bribes). Also critical is making sure that bonuses are linked to real deliveries and targets with objectives not being fudged to achieve financial reward.
The above ten questions are not rocket science, simple processes can establish clarity and assurance for you. Are your IT finances in control?