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It’s time for IT to stop acting like a cost centre

It’s time for IT to stop acting like a cost centre

But first put the IT house in order, with proof that you’re optimising the value delivered to the business and mission, writes Cathleen Blanton of Gartner

Never talk about cost without also talking about risk and value. Business and mission leaders need to understand that they’ll get what they pay for

Cathleen Blanton, Gartner

Government CIOs are under constant pressure to do more with less, while still enabling digital government. But if IT is perceived purely as a cost centre, which it is in many government organisations, it’s at the top of the list for cost cutting. 

When IT is treated as a cost centre, CIOs must show progress and results, while enhancing financial transparency to demonstrate good stewardship of funding. 

It’s time for IT to stop acting like a cost centre. Figure out what costs can be controlled directly and those that can be influenced. Then work with business and mission counterparts to determine their willingness to collaborate on the latter. 

IT cost optimisation begins in IT

Although greater savings are enabled by leveraging IT for overall business cost savings, first put the IT house in order, with proof that you’re optimising the value delivered to the business and mission. 

IT cost savings can essentially be broken down into four categories:

1. Reduce unit costs via IT procurement and vendor management.

2. Consolidate and virtualise by exploiting outsourcing and cloud.

3. Rationalise application portfolio to reduce IT complexity.

4. Use IT to enable new digital business models. 

The last two are harder to achieve, but have greater payback. They address overall business-IT cost optimisation, whereas the first two focus on savings that can basically be achieved within the IT organisation. 

Remember to never talk about cost without also talking about risk and value. Business and mission leaders need to understand that they’ll get what they pay for. 

Assess and address IT cost savings

Achieve near-term savings by assessing and addressing IT cost saving measures, which are prioritised by not only ROI, but also risk and cultural fit. 

There are a number of techniques that will help you achieve cost optimisation, such as implementing shared services; rationalising and standardising enterprise applications; adopting a cloud-first policy; and consolidating data centres. 

Respond to budget windfalls and shortfalls by optimising investments against the cost-benefit-risk picture

Cathleen Blanton, Gartner

Some opportunities are more likely to achieve hard savings that can be returned to the budget. Others result in soft savings that won’t be realised unless processes are in place to reallocate head count or time to more worthwhile projects. 

Government budget dynamics may make it difficult to recognise savings across federated organisations, such as when a central IT group must invest in enterprise capabilities that help agencies spend less. Similarly, it may make sense to move to a cloud model, where each organisation only pays for what it uses. 

Establish ongoing practices and values

Earn and exercise the right to collaborate with business and mission counterparts on overall cost optimisation by establishing ongoing IT cost optimisation practices and communicating progress effectively. 

Government budgets run through fat “spend it while you can” eras, as well as times when cost-cutting fire drills seem all consuming and never ending. While these fluctuations will continue to ebb and flow, focus on the overall cost-benefit-risk picture. Respond to budget windfalls and shortfalls by optimising investments against that picture. 

Integrate cost saving values and practices into business as usual. It takes some intentional effort to integrate conscientious frugality into IT decision making and operations. Reinforcing the values that underlie an effective cost optimisation culture can show IT leaders where cost optimisation should impact decisions. 

Use benchmarks to rationalise IT costs and establish a target run budget. Determining ideal IT run costs is key to showing leadership when IT cuts will yield legitimate or overdue savings. Also, when it will cut the “bone or muscle” and adversely impact the agency’s mission.

Establish financial transparency roadmap 

Educate leadership on the total cost, value and risk implications of IT capabilities by establishing a roadmap to financial transparency that complements budget submission justification. 

Since IT funding in government is often appropriated or budgeted independently from business and mission costs, there’s a tendency to share the pain equally in times of austerity. This approach, where all parts of the agency get their budgets cut by the same percentage, can backfire. 

You must express the increased risk and costs due to legacy perpetuation, deferred maintenance and inability to modernise in business and mission terms. This requires increased financial management maturity. 

Before allocating IT costs to business operations and mission value, first trace where the money is being spent and verify that it’s being spent judiciously.

Cathleen Blanton is a vice president at Gartner, where she is a member of the public sector government team. She specialises in helping CIOs achieve digital government outcomes in both business efficiency and mission effectiveness for their agencies.

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