The Cost Allocation Challenge
Following on from my last post about getting funding for your strategy, I am going to explore one of the big barriers to approval that you can face.
Strategy plans will often involve some kind of consolidation process; whether it be centralising a common service, or realigning architecture processes. This can often run into what I call the allocation conundrum. Typically, different areas in a business, whether departments or locations, will receive a cost allocation for the IT services they consume. In terms of technologies and their champions, winners and losers will emerge from every consolidation programme; there will always be risk-takers and risk-adverse parties in any organisation. Where the challenge comes, is in handling the costs. The last remaining customer cannot be expected to carry the cost allocation of the whole service.
I can remember one particular project, that would be proposed year after year, it was urgently needed, and would have saved a lot of money in the long term, but never got approved. There were 8 locations sharing one platform, all wanted to get off it onto something new, but no one wanted to risk being first. All of the stakeholders feared someone going first and leaving the others sharing the cost between only seven. The result – stalemate.
In the end the problem was solved by changing the finance rules to allow the project to bear the running costs of the old platform and then share all costs both running and investment with the 8 locations. They had to trust the project transparency on spend, but it made the whole approval possible. It seems simple, but in the tortured world of project and cost accounting believe me it was not easy to achieve.
It is no surprise that pay as you go cloud solutions are winning over big in house blocks of cost with these kind of issues to face. However, the moral of this post is that even if you have a good strategy and a good business case getting approval means also getting all stakeholders on side and making sure they don’t feel penalised.