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How to work with your CFO to optimise costs

How to work with your CFO to optimise costs

When CIOs attempt to focus on business cost optimisation, business stakeholders see it as a defensive move. Building a partnership with the CFO helps mitigate this issue.

The tendency for both parties is to focus the conversation on optimising cost and value associated with the IT budget. Take responsibility for shifting this dialogue.

Jim McGittigan, Gartner

Generally speaking, CIOs haven’t demonstrated the ability to effectively optimise IT spending to their CFOs' satisfaction. A lack of understanding of the contribution of IT to strategic business goals often leads to cost cutting and not true cost optimisation.

This must be flipped on is head to successfully fund innovation and digital business initiatives. CIOs need to partner with CFOs to optimise enterprise IT and business costs.

During the global economic downturn, many CEOs and CFOs instructed their CIOs to cut IT costs and maintain a lower level of spending. CIOs were, in essence, forced to understand spending patterns and drivers throughout the enterprise, not just in the IT organisation.

Even though the downturn ended, CIOs continue to acknowledge that understanding and managing enterprise IT spending is critical to their success and to that of the enterprise. Rather than increasing spending, many CIOs pursue a budget-neutral approach. They’re choosing to generate cost savings and reinvest them back into the organisation by funding innovations in information and technology.

The 2018 Gartner CIO Survey shows that, on average, IT organisations expect to increase their IT budgets by 3 per cent. This is consistent with the 2018 Gartner CEO and Senior Business Executive Survey, which shows that CEOs intend to invest more in technology.

CIOs who manage IT supply-side spending, while influencing the enterprise to optimise IT demand-side spending, should be rewarded by the CEO and CFO with additional budget allocations to fund IT innovation projects. The end goal should be to effectively optimise all enterprise costs, both IT and business costs, through the effective use of technology.

Run IT like a business within a business

Earn the right to optimise more than IT cost by first demonstrating good fiscal practices that optimise existing IT spending. Visibility in multiple views is needed into all IT spending so that spending can be accounted for and optimised from different viewpoints

Market to CFOs your fiscal management capabilities to earn the credibility to assist in optimising business cost. As you build credibility in fiscal management, partner with CFOs to assess where technology can best be deployed across the enterprise to minimise cost and maximise value at an acceptable level of risk.

Once you’ve done that, it’s important to maintain a partnership to ensure enterprise wide cost optimisation is successful. The tendency for both parties is to focus the conversation on optimising cost and value associated with the IT budget. This is critical, but success requires seeing the potential value to the enterprise if IT is allowed to help beyond just the IT budget.

Take responsibility for shifting this dialogue. By being able to effectively demonstrate the IT organisation's ability to manage and optimise the IT budget, you can then focus on maturing IT skills further.

Technology has become instrumental in the success of most enterprises. Limiting IT and its capabilities only to optimising the IT budget leaves unrealised a lot of opportunities to optimise cost and value in other budgets.

Build an effective partnership

There are four steps you can take to build an effective partnership with your CFO:

1. Optimise the supply side of the IT budget

The typical general ledger may be limited to an asset-based view of the world - labour, hardware and software – that’s often delineated only between opex and capex. However, this is the world that the CFO lives in.

Do the basics – budgeting, forecasting and contract management – well enough to effectively manage IT spending from the CFO's perspective. Build practices that support effective fiscal management and ensure fiscal accountability is driven throughout IT.

2. Provide visibility to stakeholders to optimise demand

It’s difficult for enterprise stakeholders to understand the value of IT if you only talk about assets.

Effective demand management requires shifting the focus away from opex and capex, and restating IT spending from the asset-based view of projects, products and services to a business capability view.

3. Work with the CFO to optimise IT spending

Go beyond the IT budget and ensure IT spending across the enterprise is identified and effectively optimised. On average, 81 per cent of IT spending is in a CIO's budget, with the remaining 19 per cent split between sanctioned business unit IT spending and unsanctioned spending – or shadow IT.

Leverage finance to gather IT spending outside of IT, build effective governance on all IT spending across the enterprise and avoid the command-and-control mentality on enterprise IT spending.

4. Leverage technology to optimise business cost

Move beyond IT spending and leverage technology to optimise all spending across the enterprise. Too often, when CIOs attempt to focus on business cost optimisation, business stakeholders see it as a defensive move.

Building a partnership with the CFO helps mitigate this issue, as they should have a thorough understanding of IT spending and what’s needed. Create a joint task force to evaluate and select opportunities, focus first on traditional IT opportunities and evaluate new technologies outside of traditional IT.

Jim McGittigan is a research vice president at Gartner. He advises CIOs on IT financial management, including cost transparency, budgeting, chargeback, service pricing, cost optimisation, benchmarking, project financial management and performance metrics.

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Tags leadershipinnovationstrategyproject managementGartnerfinanceCFOcio and cfofinancial downturnJim McGittigan

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