InformationWeek

February 22, 1999

Secret CIO:
IT Dollars Need Equality

IT projects need to be planned and budgeted the same way as any other business venture

By Herbert W. Lovelace

ecently, I received a letter from a research assistant named Sam, who works at a prestigious IT think tank--one of those elite groups, supported by high membership fees from CIOs of large companies (or small ones, with large IT budgets) that present thought-provoking sessions once or twice a year to their sponsors.

It's fun to attend such gatherings. You sit in the most comfortable (that is, expensive) leather swivel chairs imaginable with ample coffee, tea, and designer water to soothe your vocal cords while you ponder and discuss the impact of IT.

Sam had read my column, "It's Good To Be The King," about my buddy Jerry and his nefarious ways of keeping the company's capital spending under the control of his grubby little fingers (Oct. 19, 1998). As part of developing a research paper worthy of his sponsor's checkbooks, he asked what I thought were three excellent questions:

What are the most effective tools and methods to allocate and monitor capital spending?

What is the best strategy to prevent people from playing games with the allocation process?

How do companies align the appropriation process with strategy?

If any of us could answer these queries with both authority and accuracy, we could spend the rest of our earthly existence touring the lecture circuit accepting the homage and money of corporate executives.

The cash spent on an IT project is the same size, color, and texture as the dollars spent on a new factory and, alas, although much has been written on the subject of ensuring that IT capital is used effectively and efficiently, stories of waste are still all too frequent. Even if an appropriate total for an IT budget can be determined, its allocation is a huge problem in any organization interested in spending less than the sum of everyone's wish list.

We are all familiar with the difficulty of comparing apples and oranges. Determining the value of a new system for Human Resources vs. ones for Manufacturing or Sales is like comparing apples, cuff links, and snow.

In the absence of enough money to go around, the purported benefits of a coveted IT project increase with the same alacrity that its estimated costs are trimmed. The only thing I can think of that rivals the unrealistic costs and value of an IT appropriation in such a situation is a proposal for a new sports stadium in a city lusting for a professional team. Of course, once approval is granted for the new computer system, tracking what was actually spent can be as easy as following a money laundering scheme initiated by a drug cartel.

The most effective evaluation tools are ones that are simple to understand and easy to monitor. The only sensible way to allocate IT capital is to use exactly the same processes invoked for a new factory or product line.

Each IT project should clearly identify its benefits and how they will be measured. If the benefits are nonfinancial ones, then the specific corporate strategy supported should be explained and debated. Finally, to ensure that game-playing is minimized, the financial benefits should be inserted into the budget plan for the anticipated project completion date.

In other words, if a project is predicated on a specific decrease in costs or a specific increase in sales starting on a certain date, then the budget for the year should reflect the project's benefits. Not only will doing so help eliminate game-playing, but it will also give all involved a lot of incentive to get the project done on time--and, as a side benefit, the IT people may find that their users suddenly take a lot more interest in being part of the work being done for them.

Herbert W. Lovelace is the CIO at a multibillion-dollar international company. Herb practices his day job under an alias and has changed the names of colleagues to protect the guilty. Send him E-mail at lovelace@home.com. He'll provide real answers--and whimsical comments--to your questions on InformationWeek Online at www.informationweek.com.