How to Improve IT Value MeasurementBy Brian G. Barnier | Posted 02-10-2011
How to Improve IT Value Measurement
You've heard it before. The CFO asks "how do we know what value we're getting from IT?" The business line leader asks "How do I measure the value of IT to my P&L, not just help desk tickets closed?" The CEO asks "How do I know our IT spend is allocated to best support our objectives?"
Economic pressures are putting more emphasis than ever on the CIO's use of best practice in value measurement -- the right measures applied in the right way to get the right insights to improve value. Painfully, this came at the same time that a Center for CIO Leadership study entitled "Communicating Business Value" reported that only 51% of respondents agreed with the statement "I have developed business value indicators that link IT performance metrics and business goals."
A review of questions asked during training sessions I've conducted in the past 12 months reveals four key insights to improving value measures.
Match IT Measures to Business Measures.
This sounds simple and "alignment" has been pursued for years. Yet, when examples are given in workshops, it turns out that many enterprises are falling into two traps. On one hand, they are tying to IT operational (cost per unit) and not real business objectives. On the other hand, they try to leap from tactical objectives, such as ticket-closing times, to overarching business objectives such as "agility." This is a stretch.
Whether in projects or operations, the gap to business objectives is real. A 2009 study by ISACA -- an 86,000-constituent, 160-country IT management professional group -- found that alignment to business objectives had the lowest maturity of any of the success variables evaluated.
Tip for Matching IT Measures to Business Measures
Map objectives in steps: growth, revenue, profit, customer satisfaction, and IT objectives. To make it tangible, try using the metrics that are already applied to organizational objectives. In this way, new product introduction rates can map directly though steps to IT application flexibility.
Match Value Measures to Business-IT Investment Portfolio
Many enterprises try to map to business objectives, but fall into a trap when they don't link to portfolio categories and measures. It's somewhat like a person trying to earn more income from a retirement portfolio without ever specifically changing asset allocation strategy.
In IT terms, CIOs will say their portfolio includes "build" and "run." In retirement terms, this is like saying they want to "preserve capital" and "grow earnings." These are broad-brush statements, not tied to practical business objectives for product flexibility, data integration or resilience. More specific statements can drive architecture, hardware and software acquisition, operations design, and resulting metrics.
Tip for Matching Value Measures to Business-IT Investment Portfolio
Review the investment directions shared by your CEO and CFO at the past few investor conferences. Compare those priorities to your IT portfolio categories. How can they match up better than they currently do? What specific value measures can tie these together?
Capture all Costs and BenefitsSounds simple, but enterprises struggle with this. In workshops, IT leaders will often say "we've done this." Yet, in exercises, it becomes clear there are gaps. On the benefit side, a typical trap is failing to talk to all beneficiaries in the organization and ask how they benefit from a given solution or service.
Tip for Understanding Who Benefits
Simply ask the primary sponsor "who else benefits?" and have a conversation with that person or team. Sometimes, the beneficiary is in the "extended enterprise." The process of having a conversation with a business partner or major customer might not only help you improve the documentation of benefits (and value measures) but also to sharpen your requirements.
On the cost side, a typical trap is undercounting lifecycle costs, even insurance costs. This can show up in something as complex as an acquisition or more tactical such as a new software application.
Tips for Managing Costs
A simple tip in software acquisition is to just talk with the vendors about lifecycle costs under these two scenarios:
- alternative infrastructure environments; and
- different change rates from your business user.
Then get clarity with the business owner on value measures.
Report Value with Consistency
A surprising number of organizations struggle to deliver the value expected due to a simple trap -- they use different measures of value in their investment portfolio process and daily operations. In budget decision-making processes, there is often one set of financial tools, whether a spreadsheet, or a more formal portfolio or financial planning application.
Yet, daily performance is reported through more typical accounting systems or maybe IT service management systems.
Tips for Reporting Value with Consistency
First, configure all systems to track similar measures. This is generally a business-analyst/end-user type skill in an IT Finance role.
Second, look for opportunities to integrate your software tools. Ask your vendors how they have helped others.
To help you toward success in value measurement and reporting, here's a bonus tip from the painful lessons of others -- implement all these tips in a balanced way.
It's a bit sad to hear how an energetic leader worked so hard on one or two of these key areas, and yet still faced a grilling on "where's the value?" Print out this list, tack it to your wall and check off each tip as it's completed. Take the hard lessons others learned and put them to good use.
Brian Barnier has a split career between the business and IT. He co-developed a new program in auditing IT risk management for the Information Systems Audit and Control Association (ISACA). He is a principal at ValueBridge Advisors, where he draws on his experience to provide advisory services such as executive mentoring and problem-solving workshops.