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In parts one and two of this series we looked at recent research into the importance of optimizing your IT investments. If you're thinking seriously about taking control of your IT investment, then here’s what you need to know.
Gartner analysts have studied successful organizations of all sizes to work out what makes for best practice. There is of course no simple, one-size-fits-all solution, but there are ways you can analyze your activities and ensure you make the most of your money...
The Six Key Questions
There are always several investment plans competing for finite budget. Targeting your investment inevitably means favoring one course of action over another. Whether that’s a case of cutting some investments to fund others, or simply a matter of saying “no” to new spending, choices have to be carefully weighed for risks and benefits.
“There are almost always risks and consequences to reducing business costs,” says Gartner analyst Sanil Solanki. “For example, what may seem like a relatively straightforward cut—postponing a planned project—has business consequences and risks.”
Weighing up these consequences can be tricky, but Solanki says that there are six key metrics that underpin wise decision making:
1. Potential Benefits
It goes without saying that every investment should have benefits. So when it comes to comparing investment decisions, it’s essential to know the relative benefits of your courses of action.
This doesn’t have to be a precise dollar value, but at the very least you need to be able to classify your choices as high, medium or low benefit.
2. Customer Impact
Some changes in your IT spend can take place without your customers ever noticing. For example, customers should never notice a switch to a cloud solution for your internal operations.
Others, though, might have a noticeable impact, for better or worse, and this should be factored into your investment analysis.
3. Time Requirement
The longer it takes to recoup your initial investment, the greater the risk. Gartner suggests that you rank investment plans, according to how many years it will take to earn back the cost.
If the lag is less than six months, the investment is likely to be plain sailing. Any longer than 18 months, and you risk being caught in a storm of unexpected events.
4. Organizational Risk
Some IT investments bring organizational upheaval in their wake: Mass layoffs, radical business process re-engineering, and even the generalized anxiety caused by change.
These can all spook investors, worry customers and demoralize your staff. A much less risky proposition tends to be an investment that allows you to carry on with business as usual.
5. Technical Risks
The technical risks of IT investment projects are often the most apparent, but attending to these in isolation can be seriously misleading. For example a project may have only moderate technical risk, but if benefits are low and costs are high then even a simple change should be avoided. On the other hand, the definition of a high-risk technology change is changing—rapidly.
Technology rollouts used to be complex, expensive, risky operations. But as more enterprise-level cloud-based solutions become available, procurement of hardware time, platform support, or even applications has become as straightforward as setting up a contract for services. It’s well worth re-appraising investments that might have seemed impossible even as recently as 18 months ago.
6. Investment Requirement
This is another metric that needs thorough investigation if you’re to make the most of your IT spend. There was a time when increasing capacity meant a large upfront investment in hardware, infrastructure and accommodation. But here again, the “elasticity” of cloud-based services mean you can scale up and scale back again—flexibly, and almost instantaneously.
If it’s not clear how cloud-based services have radically rescaled this metric, think of it this way: Imagine there was no electricity-generating company—that your organization had to generate its own power. Every time you wanted to scale up, you’d need to build a bigger or more efficient generator. But in reality, you can simply increase your power usage and pay based on your consumption.
Cloud has done for IT what the power network does for electricity. Hardware, platforms and even software have become pure utilities that you use on a pay-by-consumption basis. This means that the initial setup cost for any investment has dropped massively. You no longer have to commit to building your own power plant every time you need a few extra Watts for an hour.
And consider this: It’s possible to try out new ways of operating at a much lower level of commitment.
Making Your Mind Up
Once you’ve examined the metrics, it’s decision time. Which investments get made and which get shelved? To make the decision clear, Gartner suggests you rank projects by risk and payoff on a three-by-three grid (shown in the figure above).
- Those that sit in the lower right corner—the high-benefit, low-cost projects—are ones you should invest in without delay.
- You also need to say a clear “no” to the top-left corner projects—those with little clear benefit yet a lot of risk.
- Those projects with a less clear-cut advantage need careful thought: Is your organization in a position to withstand much risk at the moment? Are your competitors acting before you, when it comes to making the sharp investments?
In The Final Analysis
Your organization’s IT investment priorities are unique. They’re based on the challenges you face and the resources available.
You will find that several promising-looking avenues are actually dead ends. On the other hand, looking carefully at projects—and keeping an open mind about ways of harnessing cloud services—can help you spot the opportunities for investment that you might otherwise have missed.
What's your take? Weigh in with a comment below, and
connect with Emma Byrne (Google+) | @SciWriBy (Twitter).
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Image credit: Gartner
