A lot of people in the United States are against what they call “big government.” Yet most of those people are in favor of government services that they consider essential. In many cases, the concern about big government is not actually a concern about the size of government — it’s more a concern about a government that has gotten out of control, a government that no longer seems to manage its expenses wisely, a government that seems to waste money on things that people consider foolish.
Much the same could be said about many IT organizations. When business people have a negative view of their IT organizations, it’s not a statement that information technology shouldn’t be used in their business — it’s more of a concern that the company’s investment in IT is not being used wisely.
In some cases, self-interest plays a role in criticism of government or IT spending. Some people consider an investment “wise” if it provides benefit to them, and unwise if it provides benefit to someone else instead.
But in most cases, a criticism of IT spending — just like a criticism of government spending — is based on a lack of understanding of exactly where the money is going. The popular term for this is a “lack of transparency.”
What is Transparency?
Transparency can mean different things to different people, but the key elements of successful transparency are:
- A simple, clear (thus the word “transparency”) accounting of where the money is going, in high-level terms. For example, x% of the budget to infrastructure, y% of the budget to maintenance, z% of the budget to projects.
- An explanation of the high-level terms, showing the next-level breakdown of why the money needs to be spent in those areas. I emphasize the word “why” because it’s critically important for people to understand the business (or government) purpose of funding in an area. If people are going to justify the spending in their own minds, then it’s key for them to understand what would happen if that funding didn’t exist. What services would disappear? How would the world be different if that funding were discontinued?
- For projects — which have a beginning, a middle and an end — a sense of where things are in each project. How long is the project supposed to take? What will it cost? How many people are working on the project? When will the project be completed? Will the project finish on schedule? Is the project over or under budget, and why? What has changed during the course of the project that is influencing its status? And most importantly, how will the business (or government) be different after the project is complete? What will be better?
- An acknowledgement of current issues. Where are things not going as well as they could? Are certain areas underfunded and thus causing problems in the business (or government)? Are projects stalled due to lack of support or resources? How could additional investment help?
- A recognition of opportunities. Are there areas where the need for funding is declining? Are there services which could be discontinued or replaced by something less expensive? Are there areas where outsourcing could help? Are there opportunities to replace an old technology with a newer technology which would make things more effective and/or less expensive?
The Risks of Transparency
Many CIOs oppose transparency because they’re afraid that providing transparency will result in loss of control. They think that if business people know exactly how the IT budget is being spent then the business people will try to micromanage the IT organization. In my personal experience, I have not found that fear to be justified, as long as budgets and project plans are presented in a logical manner that ties financial information to specific business benefits.
Financial transparency runs into trouble when budgets are presented based on expenditures rather than benefits. For example, technical training for IT employees is key to employee development and to successfully keeping up with technology advances. But you should never include technical training as a separate line item in a high-level presentation of IT costs, just as you never include employee retirement benefits as a separate line item. Instead, the technical training cost should be considered part of the cost of having an employee, and so the training cost should be included in the basic employee cost which is associated with each service provided by IT or each project done by IT.
If someone in the business wants to suggest specific changes to your IT budget, then let them make decisions on business benefit — not decisions on how efficient you are at delivering that benefit. So, for example, if they think an infrastructure expense for Internet servers is too high, then let them decide how important it is for the servers to be available all the time — not whether or not you could get by with fewer servers. And if they insist that your costs may be out of line with other providers, then let them suggest an IT project to do an analysis of whether there’s a better way to provide the required capability. That analysis can look at the hardware and software being used and determine whether current technology offers a better, more cost-effective way of delivering that service.
The Key to Successful Transparency
The key to successful use of transparency is to connect every dollar being spent to a specific business benefit. Often that requires restating your financials in a way that doesn’t correspond to your organizational structure. For example, you may have a help desk organization that provides support across a number of different application areas. The cost of that help desk organization should never be presented as a single line item because it will immediately become a target for cuts. Instead, the cost of the help desk should be apportioned out based on the areas of business benefit that it provides. For example, support for users of a Customer Relationship Management system should be rolled into the support cost for that system, and support for desktop applications should be rolled into the support costs for the specific business organizations being supported.
Just to be clear, I’m not talking about charge-backs here, where the cost of these services is cross-charged from IT to the other departments and the money is essentially taken out of the IT budget. I’m merely saying that the budget summary for the IT organization should account for the support costs under the line items for the individual systems or areas being supported. Don’t lump support all together, but instead summarize the support costs under the categories where benefit is provided.
This approach may seem deceitful to some readers, but I’m not advocating this restatement of financials as an attempt to hide costs — the approach actually clarifies costs. If a help desk organization is considered a single expense and the budget is cut, then someone will have to make decisions about which user areas will get a lower level of service. And whichever areas get the lower levels of service, IT will get the blame. My suggested approach allocates the help desk costs to the business areas from the beginning, and lets the business areas themselves make the decisions about help desk cuts by tying those cuts to specific areas of support, thus avoiding IT blame and putting the responsibility where it belongs.
The secret to avoiding the stigma of big government or big IT or any out-of-control spending is to use transparency to make it absolutely clear where the money is going. While people tend to argue about generalities, they’re seldom in doubt about specifics that affect them. By tying each dollar and resource of an IT organization to a specific business benefit, you can make it very clear to everyone that your organization is doing exactly what has been asked of it. If the business wants to cut spending, then the business should be prepared to live with fewer services. And if the business wants more out of IT, then it’s clear that more investment is required.
Transparency gives you a better relationship with the business, and it lets you sleep better at night, knowing that your IT organization is doing exactly what you agreed to do.