This is the third article in a series about Cost Transparency*. The first two articles showed how IT can change perceptions about their contribution in an organization. This article looks at how to report costs in ways that show IT’s value.
We know that costs must be linked to how business goals are achieved, especially profitability. But the IT budget isn’t usually designed to show this. So how do IT leaders get the point across?
First, budgets aren’t the only place to report IT spending.
Getting IT funding to support the business is much easier when IT leaders engage with business leaders in regular IT finance discussions outside of the budget cycle.
Find ways to include discussions around finance in:
- Service level reviews
- Regular meetings with business leaders
- Board meetings
- Planning meetings
- Project reviews
Business leaders welcome discussions about IT finance. The more they understand, the more they feel they have control, and the more they will be willing to discuss alternatives. In most cases, once business leaders understand how IT costs work, and what it takes to deliver the quality of service they’re asking for, budget discussions become a lot easier.
Second, financial reports should focus on more than just costs. Cost Transparency helps to show the value of costs.
Every IT expense is there for a reason. They are used to manufacture products, sell services, comply with regulatory requirements, protect our intellectual property, support customers, manage the organization. Most IT leaders think everyone understands this, so all they have to do is communicate the cost of everything they do – no explanation necessary.
But imagine taking your car in for routine maintenance and you get presented with a bill that’s $100 more (or less) than you budgeted for. Wouldn’t you want to know why? Should you not have been presented with options before they did the work? Imagine if the service manager responded with “That’s what it costs to keep your car running.” While that may be true, and while you may not have a choice, it’s not good business practice.
So how do you change IT financial reports to show value rather than cost?
Cost Transparency provides a number of techniques (each of which will be discussed in more detail in later articles):
- Use the audience’s categories first. The first categories the audience sees should make sense to them. Business leaders are not likely to be receptive if the first things they see are “Infrastructure”, “Applications” or “Network”. Rather try using categories that they can relate to, such as IT services that they use, or business activities that IT supports.
- Report the outcome associated with each category. Every financial report should include the return on what is spent. What business goal was achieved and, by implication, what would happen if the money had not been spent. (You may not get this right the first time, but the audience will happily help to adjust them)
- Show IT cost categories second. Once the audience sees the cost of something they can relate to, now you can go into detail about how those costs are incurred, and even explain some of the challenges you have in managing those costs. For example, show what you do to secure storage, and what the business unit would have to do to get the same level of security if they moved to cloud storage
- Be transparent about how costs are allocated: If you have to split the cost of an IT category across multiple categories, show how and why you did it
- Show policies and governance decisions: If one part of the business has required you to standardize on the fastest network, and the executives have agreed that everyone needs to pay for it, that will need to be stated. This will shift negative perceptions of IT being needlessly expensive.
The next articles in the series will look at these techniques in more detail, and also look at how to use financial reporting as part of regular meetings within IT and with business unit leaders.
*In this series of articles, David Cannon, ITIL® v3 author and ITIL® 4 Lead Editor, shows you how to use Cost Transparency to change your professional life and your standing in the organization to report the value of IT.